What is grant income?
Grant income is money given to you by the government, charities, or other organizations either to help you with specific projects and activities or to give generally funding to your overall company or charity. It’s important to keep track of this money correctly to ensure your financial records are accurate.
How to recognise grant income
Charities recognise grants at the time of receipt, unless exceptionally there is a legally binding obligation repay a grant that has been received or performance related conditions that haven’t yet been met.
Grants for general funding are also recognised at the time of receipt.
For any entity that is not a charity, there are two main ways to recognise (or record) grant income that is for specific expenditure:
- The Accrual Model: You spread out the grant money over the time you are spending it. This way, the income matches the expenses. Grants are classified either as relating to revenue or assets.
- The Performance Model: You record the grant money when you meet the conditions set by the grant provider. If there are no conditions, you record the money when you receive it.
Deferring grant income
Sometimes, you might receive grant money before you spend it. In this case, you record the money as a liability (something you owe) until you spend it. This helps match the income with the expenses.
Examples:
- General purpose grants: These grants must be recorded as income as soon as you receive them and not deferred
- Specific expenditure grants: If you get a grant for a specific expense, you can defer the income until you spend the money when you release the deferred grant to match with the expenditure
- Project-based grants: For grants related to a project, you can spread out the income over the project’s duration by also deferring the grant
- Grants for capital expenditure: These can be deferred when received and released to match the depreciation of equipment bought with the grant money.
Charities accounting
Charities usually record grant income on receipt, with no deferral. Grants for general funding are recorded as unrestricted income. Grants for specific expenditure or outcomes are recorded as restricted fund, with a fund for each grant.
Within the Statement of Financial Activities (SOFA) grant income is shown either as part of “Income from donations and legacies”, however, if a grant is supporting a trade operated by the charity, the grant income forms part of “Charitable Activities – Income”.
Where to find the rules
The rules for accounting for grants in the UK are found in the following documents:
- Charities SORP (FRS102) page 51 sections 5.5 to 5.18
- Micro Entities FRS105 section 19 (particularly see sections19.7 and 19.8)
- All other entities FRS102 section 24 (see sections 24.4 and 24.6.
Conclusion
Properly accounting for grant income ensures your financial records are accurate and compliant with regulations. At Green Accountancy, we’re here to help you navigate these complexities and manage your grant income effectively.
Book a free online meeting with us at any time to discuss your grant income.
