The Charities Act was introduced in 1993 and became law in 1997. It requires that churches and charities produce accounts in a true, transparent and complete way. To do this charitable organisations are required to use funds in their accounts and to report on them.

Accounting for churches and charities is different to normal accounting. Why? Consider a company that sells a product or service - it is able to spend the profits on whatever it chooses. However when a church or charity is given money by a donor for a specific purpose, or in a collection taken for a particular purpose - the money is RESTRICTED - it can only be spent on that purpose. If a church or charity produced accounts in the same way as a company the results could be misleading.

For example a charity may have liabilities of £10,000 and assets of £60,000 so the balance sheet will show the charity is worth £50,000. However fund accounting may show that of this £50,000 healthy balance £45,000 is a legacy for mission and £5,000 is UNRESTRICTED in the general fund. Consequently if buildings needed to be repaired only £5,000 would be available and not £50,000.

For more information on the Charities Act please visit the Charity Commission website at www.charity-commission.gov.uk