When Should a Charity Recognise Income under the Charities SORP?
- Skyrock Accountants
- 56 minutes ago
- 3 min read
When should a charity recognise income?
This is one of the most common questions trustees, treasurers and charity managers ask — and one of the areas most likely to cause problems during an independent examination or audit.
Under the Charities SORP (FRS 102), income is not always recognised when money is received. Instead, charities must follow clear rules to decide when income should appear in the accounts.
In this guide, we explain when a charity should recognise income under the Charities SORP, using plain English and practical examples.
What does “recognising income” mean for charities?
Income recognition determines when income is recorded in a charity’s accounts, not when cash hits the bank.
The Charities SORP requires income to be recognised when the charity becomes entitled to it, provided that:
receipt is probable, and
the amount can be measured reliably - charities-sorp-frs102-2019a
This principle is particularly important for charities receiving:
grants
contract income
membership subscriptions
restricted funding
The three conditions for recognising charity income
A charity can only recognise income when all three of the following conditions are met.
1. Entitlement
The charity has a legal or constructive right to the income.
2. Probability
It is more likely than not that the income will be received.
3. Measurement
The amount of income can be measured reliably.
If any one of these conditions is not met, the income must not be recognised yet.
When is donation income recognised by a charity?
Unrestricted donations
Unrestricted donations are usually recognised when received or when the charity becomes entitled to them.
Example A £1,000 donation received in March is recognised as income in March.
Restricted donations
Restricted donations are also recognised in full when entitlement arises.
The restriction affects how the income can be spent, not when it is recognised.
Example A £5,000 donation restricted for a youth project is recognised immediately but shown as restricted income in the accounts.
When should a charity recognise grant income?
Grant income depends on whether conditions are attached.
Grants with no performance conditions
If a grant has no conditions limiting entitlement:
Income is recognised in full when the charity becomes entitled to the grant.
Grants with performance-related conditions
If a grant requires the charity to:
deliver services
meet milestones
submit reports
achieve outcomes
then income is recognised only as those conditions are met.
Any money received in advance must be treated as deferred income (a liability).
Rule of thumb If the funder could reasonably ask for the money back, the income should be deferred.
ExampleA £30,000 grant paid upfront to deliver 10 workshops:
Income is recognised as each workshop is delivered
Undelivered amounts remain deferred at the year end
How should charities recognise contract income?
For contracts to supply goods or services, income is recognised:
As the service is delivered
Not when cash is received
This follows standard accruals accounting principles under FRS 102.
Example A £12,000 annual service contract:
£1,000 income recognised each month over the contract period
What about membership subscriptions?
Membership subscriptions should be recognised over the membership period, not all at once.
Example £120 annual membership fee paid in advance:
£10 recognised per month
The unused portion at the year end is shown as deferred income
When is legacy income recognised?
Legacy income should only be recognised when entitlement is certain, which usually means:
the donor has passed away
probate has been granted
the amount can be measured reliably
If there is uncertainty, the legacy must not be recognised yet.
What is deferred income in charity accounts?
Deferred income arises when money is received before the charity is entitled to recognise it as income.
Common examples include:
grants with conditions
advance contract payments
membership fees paid in advance
Deferred income is shown as a liability on the balance sheet and released to income only when the recognition conditions are met.
Why income recognition matters for trustees
Incorrect income recognition can:
overstate reserves
mislead trustees and funders
cause issues during independent examination or audit
attract regulatory scrutiny
Correct income recognition ensures charity accounts present a true and fair view and comply fully with the Charities SORP.
How Skyrock Accountants can help
At Skyrock Accountants, we specialise in charity accounting and Charities SORP (FRS 102) compliance, including:
SORP-compliant charity accounts
Restricted and unrestricted fund reporting
Grant and deferred income reviews
Independent examinations
If you’re unsure whether your charity’s income has been recognised correctly, we’re happy to help.
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