Bookkeeping for Charities – All You Need to Know

UK law requires every charity to keep accurate financial records, detailing each transaction, fund, asset, and liability. If your income passes certain thresholds, you’ll also need to prepare formal accounts, submit returns, and provide a Trustees’ Annual Report that meets regulatory expectations.

These duties can feel demanding, especially alongside everything else a board is managing. But with the right systems and support in place, they’re entirely manageable.

So, what does effective bookkeeping for charities actually look like? And where should your attention be? This guide sets out the essentials: what to record, when to report, which tools to use, and when to bring in support.

What Is Charity Bookkeeping?

At its simplest, bookkeeping means keeping an accurate record of everything your charity receives and spends. But in a UK charity context, it goes further.

You need to record income and expenditure in a way that reflects your charitable structure, separates restricted from unrestricted funds, and supports the preparation of annual reports and financial statements that meet Charity Commission standards.

Charity bookkeeping supports both daily operations and longer-term strategy. It allows you to see whether a project is running within budget, if grant funding has been used correctly, and whether your reserves are being managed in line with your policies. It’s also the foundation of reporting to funders and regulators and a key part of demonstrating financial transparency to your donors.

Why Does Good Bookkeeping Matter?

Good bookkeeping gives trustees the clarity needed to lead with confidence. It provides a current view of your charity’s financial position, supports better decisions, and helps you meet your legal responsibilities without scrambling at year-end.

Done properly, it offers five core advantages:

It keeps you compliant.

Trustees are legally required to maintain proper accounting records. Good bookkeeping supports the preparation of your annual accounts, Trustees’ Annual Report, and Annual Return. It also ensures your records are audit-ready, with every figure traceable back to the source.

It strengthens financial oversight.

When your records are up to date, you can monitor income and expenditure in real time. This helps you track project budgets, spot overspending early, and plan future activity based on actual figures, not guesswork.

It builds trust with funders and donors.

Clear, consistent records show how every grant or donation has been used. When restricted and unrestricted funds are properly recorded and reported, funders are more likely to renew their support, and your reputation remains intact.

It improves grant readiness.

Many funders ask for management accounts, transaction histories, and breakdowns of income and costs. A well-managed bookkeeping system means you can provide this information quickly and accurately.

It reduces risk.

Regular reconciliation and clear documentation make it harder for mistakes or fraud to go unnoticed. Strong bookkeeping supports internal controls and allows potential issues to be addressed before they escalate.

How Is Charity Bookkeeping Different from Business Accounting?

At first glance, the mechanics are familiar: tracking income, recording costs, reconciling bank accounts. But for bookkeeping for charity, the goal is public benefit, not commercial return, and that shapes every aspect of how your records should be kept.

Here are three key differences that matter:

Fund-based, not profit-based

Charity accounts are structured around fund accounting. That means you must record and monitor income by source. For instance, a restricted grant for a specific project, versus general donations. These funds must be tracked separately and spent in line with their intended purpose. The Charity Commission and your funders will expect to see this clearly in your records.

Stewardship, not shareholder return

In the charity sector, bookkeeping is about accountability, showing how resources are used to deliver on your charitable aims. Financial transparency isn’t just best practice. It’s what underpins your relationship with supporters, funders, and the public.

SORP and sector-specific reporting

If your income exceeds £250,000, you’re required to prepare accrual accounts under the Charities SORP. This includes a Statement of Financial Activities (SoFA), a balance sheet, and supporting notes. Even smaller charities using receipts-and-payments accounting must present their figures in a consistent, credible format.

What Records Do You Need to Keep?

Keeping the right financial records is a legal duty for all UK charities, regardless of size. These records form the basis of your accounts, your Gift Aid claims, and your ability to answer funder or regulatory queries with confidence.

As a trustee, you must ensure your charity holds full and accurate records of:

• Donations and grants – including dates, amounts, donor details, and whether the funds are restricted or unrestricted.
• Gift Aid declarations – signed or digital confirmations from donors, linked to the relevant transactions.
• Fundraising income – from events, campaigns, collection tins, online platforms, and any trading activity.
• Expenditure – such as supplier invoices, staff costs, rent, utility bills, and programme delivery costs.
• Payroll records – payslips, pension contributions, PAYE filings, and reimbursements for volunteer or staff expenses.
• Bank transactions – full reconciliation logs showing how your internal records match your bank statements.
• Assets and liabilities – including equipment, property, loans, and any lease agreements.

You must also retain supporting documentation — receipts, invoices, contracts, grant agreements — and keep everything securely stored for at least six years (or longer, if required by a specific funder or grant condition).