Accruals or Receipts and Payments
The Charity Commission in England and Wales, and OSCR in Scotland accept accounts to be returned in accruals format for any size church. If your gross income for the year is less than £250,000 then you are allowed to submit receipts and payments accounts.
The receipts and payments method is essentially a cash book. Transactions are only entered when money is received or paid out. Hence, if you have a tray of bills that you have not yet paid, then these will not be booked and so will not appear in the accounts. On the other hand, accruals accounting takes care of accrued expenditure and income - the bills in the tray would have been booked to the accounts when you received them and the payments would be booked through when made. Accruals accounting will give a more accurate statement at any time and is 'proper accounting', but receipts and payments can be an easier system to adopt if you are not too familiar with book-keeping.
Another important aspect of accruals accounting is its inherent inclusion of a balance sheet stating the full range of assets and liabilities of the organisations. If, for example, your church purchases a vehicle, then its value could be shown as an asset in the accounts. The value of the vehicle could then be depreciated on a regular basis using accruals accounting. With receipts and payments, the only assets that show in the accounts are money accounts (bank and cash held) and so the value of the vehicle would not appear – it would be written off at purchase time. You would need to maintain a separate log of assets and liabilities whereas with accruals accounting this is all integrated.
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With regards to Charity Commission reporting, any church can submit their return in accruals format as this is proper accounting. As a concession, the Charity Commission in England and Wales, and OSCR in Scotland allows smaller organisations to submit their returns in receipts and payments format.
If you run accruals accounting, then the Paxton packages will provide a balance sheet as well as an income and expenditure report for each fund. Hence, you will know the true value of any fund as well as for the consolidated church.
The Standard version of Paxton accommodates both receipts & payments and accruals methods of operation, and the PRO version is accruals only. When you initially create your database, you will tell the system which method you will be using. This determines the terminology and the menu selections available when running the package. If you start off with receipts and payments and then decide that really you would be far better off using accruals, or it your income crosses the £250,000 threshold then Paxton can supply an upgrade path without loss of existing data.