Understanding Funds

Introduction

As charities, academies must produce statutory accounts that include a ‘Statement of Financial Activity’, together with a ‘Balance Sheet’.  The format of both reports is pre-defined and in the case of the SoFA has separate columns for ‘Unrestricted Funds’, ‘Restricted Funds’ and ‘Restricted Fixed Asset Funds’.  Similarly, the Balance Sheet must show in addition to a total figure for ‘Unrestricted Funds’, balances for Restricted Funds analysed between ‘Restricted Income Funds’, ‘Restricted Fixed Asset Funds’ and ‘Pension Reserve’.

To achieve this analysis between the various funds either the ‘Charities’ option in Sage must be switched on, or alternatively, the ‘Use Academy Funds in place of Sage’ must be selected in the Academy System ‘Academies Configuration’.

The principle is the same regardless of which method of analysing by fund is used, but the ramifications of each is described separately below.

Sage Charities option

If this method is used every income and expenditure transaction entered during the financial year is allocated to one of the funds as set up in Sage. (Or, in theory they should be - see Transactions with No Fund References to discover if any transactions have no been allocated a fund.)

Normally there will be a minimum of four, but you can have any number of Funds in Sage.  Each fund is given a number, a description and a nominal account.  The nominal account is the account to which any net income/expenditure for the fund is posted as part of the year-end process.  The net income/expenditure for a fund is calculated by summing the transactions for each fund in the financial year.

Provided the 'Charities' option has been set in Sage, the Funds are maintained from the 'Charitable funds' menu item in Sage.

Sage Charitable Funds

Funds - defined in Academy System

If this method is used every income and expenditure nominal account is allocated to a particular fund.

As with funds maintained in Sage there will be a minimum of four, but you can have any number.  The net income/expenditure for a fund is calculated by summing the income and expenditure nominal account balances for each fund in the financial year.

See Funds - defined in Academy System for more information.

Both Methods

In both set up methods, the following will also need to be completed:

During the Financial Year

The Statement of Financial Activity will analyse the income and expenditure during the year and insert the relevant figures in the appropriate columns.  In the case of using Sage funds, according to the fund references on income and expenditure transactions, and in the case of using Academy Funds according to the mapping of nominal accounts to funds.

The Balance Sheet will show 'Funds of the Academy Trust' analysed into the four headings.  The balances will be:

  • The opening balances from the nominal ledger for fund accounts (normally in the range 8000 to 9000)
  • Plus net income/expenditure for the year to date by fund, either by summing the transactions for the current year if using Sage funds, or nominal account balances for the current year if using Academy funds.

At the Year End

If using Sage funds, as part of the Sage year-end process, the net income/expenditure for each fund will automatically be transferred to the appropriate fund nominal account as defined in the Charitable Funds, (as shown in the screen-shot above).

If using Academy funds, the Sage year-end process will transfer the net income/expenditure for the year for all funds to the nominal account in Sage defined in the Control Accounts as 'Retained Earnings'.  This will require a manual journal to be entered, after the year-end, but with a date of 31st August in the year just closed, transferring any net income/expenditure by fund to the appropriate nominal accounts.

It is also quite possible, if you are using Sage funds, that your auditors will have completely ignored the fund analysis from Sage and arrived at a different analysis of funds.  If this is the case a similar journal will be required.

If you are unsure what to do in these circumstances you should consult your accountant or auditor for guidance, but make sure any journal is dated as the last day in the previous year.

Note: There is a rather strange flaw in Sage in that if you have ever had the Charities option turned on and then decide to turn it off, Sage 'remembers' the Charities settings and at the year-end appears to make a random posting to the fund accounts.  The only solution to this is to make a manual post year-end journal to correct Sage's postings.