Capital Expenditure
One of the accounting conundrums faced by academies is how to handle the reporting of capital income and capital expenditure.
From a financial reporting point of view capital income is a 'profit and loss' item, and therefore shown on the SoFA, whereas capital expenditure (additions to fixed assets) is a 'balance sheet' item and therefore not shown on the SoFA.
However, from an academy's budget monitoring perspective, which is centred around cash income and expenditure, it would be preferable to include additions to fixed assets as a current year profit and loss item.
One way around this problem is to post additions to fixed assets to the profit and loss section of the chart of accounts, and just before the year-end to journal capital expenditure to the balance sheet. This works for budget monitoring purposes, but means that balance sheets produced during the financial year are wrong and potentially misleading.
A better solution has been devised by Dayta so that additions to fixed assets are posted to the correct nominal ledger as they occur, thus avoiding the necessity to remember to post correcting journals at the year-end as well as misleading balance sheets during the year. It also allows budget monitoring reports to include or exclude capital income and expenditure.
This is simply achieved by
- nominating a department (or departments) as capital expenditure
- posting additions to fixed assets using that department (to the correct nominal account for fixed assets - in the range for Fixed Assets as defined in Nominal Account Ranges). Do not use department 0 as postings to nominal accounts in the fixed assets range and this department are specifically excluded from budget monitoring reports.
- creating a 'Department Reporting Category' specifically for capital income and revenue, and making sure that its 'sort order' will place it at the end
- linking capital income and capital expenditure departments to the new 'Department Reporting Category'.
When running budget monitoring reports, tick the 'Include Capital Expenditure' checkbox. For some reports, such as the Retrospective Budget Monitoring' report where the option to select a range of 'Department Category' is available it will now be possible to run the report for the whole range, or for the range up to 'Capital Income and Expenditure' which will produce a report for only revenue departments, or for just the 'Capital Income and Expenditure' category.
The following shows possible selections for the Retrospective Budget Monitoring report.
