identified.
It should be noted that a church is not obliged to accept any donation, and may wish to refuse if the restrictions are unreasonable, particularly if the amount is small.
Designated funds
These are when the church itself has set aside some of its money for a specific purpose. For example, the church may realize that it will need £250,000 to replace its church hall in ten years’ time, so it resolves to set aside £25,000 a year to pay for this. This is not a restricted fund as the church authority can at any time decide to reverse its decision and spend the sum as it wishes. Neither is this an unrestricted fund, as the church does not wish to spend this sum on anything else.
A designated fund must be for a specific purpose and must be approved by the church council, diaconate, trustees or similar body. A designated fund must not be created by the treasurer acting alone. Sometimes treasurers have created designated funds to ‘squirrel’ away surpluses to make the church accounts look less prosperous.
Rather than produce accounts showing that the church made a surplus of £21,467 one year, the treasurer may be tempted to transfer £20,000 to a designated fund, perhaps for building maintenance, and show a surplus of just £1,467. Sometimes this can be done to create a sense of the church ‘just about paying its way’ as an incentive for people to keep giving, and to prevent church members coming up with unwelcome ideas on how to spend this surplus. While understandable, this is a form of deception on the church members, even if you correctly report the transactions. By the time the annual accounts are prepared, the church authorities should have decided what to do with any surplus, and that should be included in the treasurer’s report.
Unrestricted funds
These are when the church is free to do what it wishes with the money. For most churches, most of the funds should be unrestricted. This is what you use to pay the routine bills. Any fund which is not an endowment, designated or restricted comes within the scope of unrestricted funds.
It is not necessary for these funds to be kept in separate bank accounts, though an endowment fund will often be in a separate investment account anyway. It is possible for restricted and designated funds with any surplus unrestricted funds to be kept in a deposit account while unrestricted funds are kept in a current account on which the day-to-day cheques are drawn.
Old funds
Before 1993, there was no specific requirement in the Charities Act to separate restricted and unrestricted funds in the same way (though trust law has always required some separation of different funds), so some old funds may contain a mixture. A common example is a fabric fund which may contain restricted funds from specific appeals and designated funds allocated by the church council. The basis of how those funds arose may have been lost.
Where an old fund is mixed, the charity should go back as far as it can in its records. Since 1960, charities have been obliged to keep records for the previous six years, though many churches keep accounts indefinitely as part of their history.
THE RECORDS
The choice
Having understood the objectives, the treasurer should decide what form the records should take. The choice is between bound books and a computer system. Note that looseleaf files are generally not acceptable. Records must be seen to be timely and unfalsified. This is much more difficult for looseleaf records than for a bound book.
Each has advantages and disadvantages. Computer system have the advantage that copies are easily made, and calculations and reconciliations are easily prepared. Against that, bound books have the advantage that you do not need a computer or print-out to read them, and they are simpler to keep up to date.
Computer systems tend to copy the disciplines of manual accounting systems. For this reason, we consider the requirements of record keeping in terms of manual records written in ink on the pages of a book, and then separately consider the additional factors for computer records.
Basic disciplines in handwritten accounts
1. All entries must be made in permanent ink
It is never acceptable for entries in accounting records to be in pencil or some other erasable form. Entries may be made in fountain pen, ballpoint pen, rollerball pens or with any other permanent writing implement.
2. All entries must be legible
There must never be any doubt as to what the entry says. This usually means writing numbers more slowly and carefully than normal. It is easy for 1 and 7, and for 0 and 6 to look similar when written quickly.
Badly written number
If an entry becomes illegible, such as through an ink blot or spilt coffee, the illegible entries should be copied with a cross-reference.
3. All amendments must leave the original figure legible
If you find that you have made a mistake in the accounting records, you must correct it so that the original figures are still legible. This usually means drawing a single line through the figures, and noting why the item has been deleted. As explained in the next section, it is preferable not to delete entries but to contra them.
How not to delete a cash book entry
How to delete a cash book entry
You never use opaque correction liquids on accounts. You never paste over the original paper. Never write over a figure to make it look like another figure. Always delete the original figure and enter the correct figure.
How not to correct a wrong figure
4. An amendment usually requires two correcting entries
Suppose you enter £127 for an electricity bill, instead of £172. The best practice is to make one entry to reverse the incorrect entry, then make the correct entry. If you simply make one additional entry for the extra £45, your records will still agree and give the right answer. However, the records are not correct, as you did not receive electricity bills for £127 and £45; you received one bill for £172. It is not immediately obvious from the records to what the £45 refers.
If the two entries are close on the page, it is sufficient to mark the original entry and the reversal entry with the contra sign, ¢.
How to correct an entry in a cash book
Audit trail
A fundamental requirement of all accounting records is that they maintain what is known as the audit trail.
There are various levels of accounting records. Typically accounts have four levels:
Published accounts
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Annual
