Keeping financial records, or bookkeeping, is an essential but often misunderstood task. Bookkeeping for arts organisations is especially important. That’s why, this article will give you an overview of why bookkeeping (record keeping)matters and how it works for arts organisations (but it is also applicable to freelancers in the art sector, too).
Bookkeeping for Arts Organisations: Why It Matters
There is a legal requirement for organisations and freelancers to keep accounts. For example, The Taxes Acts require you to keep records where individuals are subject to the self-assessment regime, Company Law requires companies to keep records that are show and explain the company’s transactions, financial position, etc. Charitable arts companies, in addition, also operate within the framework of Charity Law. In the context of bookkeeping for arts organisations, these legal frameworks are particularly relevant.
The Importance of Accurate Records
Apart from the legal imposition, effective record keeping is critical for a number of reasons, namely:
- Keeping track of ‘business’ activities;
- Compliance with tax, PAYE and VAT;
- Providing management information that shows levels of cash, income, costs, debt, monies owing, successes and failures;
- Part of a risk reduction approach;
- Helping keep accounting fees at a manageable level.
Good bookkeeping for arts organisations directly supports these management responsibilities.
How Bookkeeping Supports Management
Management responsibilities tend to cover the areas of planning, control, decision making and evaluation – the bookkeeping system plays a major role in the management information system, and it provides information that helps management carry out these functions.
Financial data are the numbers of an organisation’s activity, for example a theatrical performance will generate income (ticket sales, grant income), incur costs (artists fees, equipment hire), create liabilities (artists fees not actually paid for), and create assets (grants not received).
Bookkeeping must capture this data so management can extract and use the information (for example, for financial assessment of the performance and cash flow considerations). This is why consistent bookkeeping for arts organisations remains essential across all types of activity.
Understanding Cash and Credit Transactions
The bookkeeping system needs to distinguish between credit and cash transactions. A credit transaction occurs when a delay (normally over a day) separates buying or selling goods and services from the actual payment or receipt of cash. You should record income when you sell goods or services and record costs when the supplier provides the goods or services.
Cash is a general term, and we distinguish between transactions of physical cash (including notes and coins) and those transactions flowing through the bank accounts (deposits and payments).
Record-Keeping Systems for Bookkeeping for Arts Organisations
Records are normally subject to a classification. The main classifications are:
- Income (for example: this includes grants and fees);
- Cost of sales relating to the main activity of an entity (for example: this includes artists’ fees and freelance costs);
- Overheads or running costs (for example: this includes salary and travel and subsistence).
The summary of these categories appears in the profit statement (SOFA for a charity).
Additional categories are required for:
- Assets (for example: this includes cash and unpaid customer accounts);
- Liabilities (for example: this includes unpaid supplier accounts and overdrafts);
- Capital and reserves – this refers to the net funds available to an entity and includes the profit or loss for the year.
These categories are reflected in the balance sheet. Understanding these classifications is a core part of effective bookkeeping for arts organisations.
How Financial Transactions Are Recorded
Bookkeeping normally reflects the financial result of a business transaction. The financial impact normally involves recording information in two accounts. For example, when you pay an outstanding bill by cheque, you record a reduction of bank funds and reduce this debt. When you complete work on credit, you record income earned and increase assets (money owed).
Choosing the Right Method for Bookkeeping for Arts Organisations
You can maintain records manually and/or electronically (using Excel and/or accounting software). The user’s needs and skills should drive the choice, particularly for those doing bookkeeping for arts organisations, along with any internal reporting requirements such as board meetings, the relative costs, the accuracy of the systems, and the complexity and number of transactions.
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