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For the Year End Statement of Account for Service Charges, Tech 03/11 requires the following: an Income and Expenditure Sheet, a Balance Sheet, and Notes to the Accounts.

1: INCOME AND EXPENDITURE

Income and Expenditure shows how much money came in against what was spent and is broken down as follows:

Income: This is the budget for the financial year in question consisting of

  1. Service Charge Receivable: This represents amounts demanded for the period in question;
  2. Interest on Late Paid Service Charges;
  3. Bank Interest Receivable.

*These figures are added together to give Total Income*

Followed by Service Charge Expenditure, Utilities & Insurance consisting of:

  1. Water – Communal
  2. Electricity
  3. Buildings Insurance
  4. Directors & Officers Insurance
  5. Insurance Valuation

*These figures are added together*

Followed by Contracts Maintenance & Services consisting of:

  1. Equipment Telephone Line
  2. Reactive Refuse Removal
  3. Drainage Maintenance
  4. Landscape Maintenance
  5. General Repairs & Maintenance
  6. CCTV System
  7. Fire/Emergency Lighting

*These figures are added together*

Followed by Fees consisting of:

  1. Debt Collection Costs
  2. Management Fee
  3. Administration Charges
  4. Accountancy Fee
  5. Fire Risk Assessment
  6. Health & Safety Assessment

*These figures are added together*

Followed by Additional & Sundry Costs consisting of:

  1. Out of Hours
  2. Bank Charges

*These figures are added together*

The total figure from each of these groups are then added together to give the Total Expenditure from which the Total Income is subtracted to provide the net surplus/deficit for the year, in other words either an overspend or an underspend.

If any surplus figure is credited back to each leaseholder then it is not added to the Balance Carried Forward figure.

Income consisting of:

  1. Sinking Fund Receivable: This is always the same figure each year.

Sinking Fund Expenditure

  1. Repairs & Maintenance: This is subtracted from the Sinking Fund Income Receivable to give the Net Increase/Decrease for the Year.

Net (Decrease) For The Year

  1. Balance Brought Forward: This is the previous years Net Increase/Decrease for the Year and the Balance Carried Forward figure added together.
  2. Balance Carried Forward: This is the Net Increase for the current Year subtracted from the above figure.

BALANCE SHEET

A balance sheet is only a snapshot of a business’ financial position on one particular day. It is called a balance sheet because there is a debit entry and a credit entry for everything (but one entry may be to the profit and loss account), so the total value of the assets is always the same value as the total of the liabilities.

There can be considerable confusion about the inherent meaning of a debit or a credit. So for example if you debit a cash account, then the amount of cash on hand increases. If you debit an accounts payable account, this means that the amount of accounts payable liability decreases.

A very handy way to remember what debits increase and what credits decrease is that of the golden rule of DEAD CLIC so:

  1. Debits increase Expenditure, Assets, Dividends (and credits decrease them);
  2. Credits increase Liabilities, Income, Capital (and debits decrease them).

What the balance sheet doesn’t do is show day-to-day transactions or the current profitability of the business. However, many of its figures relate to (or are affected by) Profit and Loss transactions on a given date.

The balance sheet is comprised of the following:

Current Assets:
The assets of a company are recorded as debits (a good thing) which are expected to be converted into cash, inventory and accounts receivable within 12 months of the balance sheet date. They are also termed liquid assets but whatever they are called their value can fluctuate from day to day. They show the following:

  1. Bank Balance;
  2. Service Charge Debtors (money owed by leaseholders);
  3. Other Debtors (money owed from elsewhere such as trade debtors. These are suppliers that give a grace period in which to pay after services have been provided. The amount that goes on the balance sheet for trade debtors is the sum of all unpaid customer invoices at that point in time. A provision is usually made in the accounts of a firm to to offset uncontrollable accounts receivable (bad debts) as losses.
  4. Prepayments: These transfer expenditure into the next year end/or accounting period, if they don’t relate to the year they occurred. So, if half of an expense crosses over into the following year, such as when a debt or an instalment payment is made before it’s due (whether for the entire balance or not)  then half the amount is placed on the balance sheet as a ‘prepayment’ and classed as an asset. On the first day of the following year the expense is taken from the prepayments and returned to expenses.

These figures are added together*

Current Liabilities

  1. Trade Creditors;
  2. Service Charges Paid in Advance;
  3. Short term loans  from an RMC, overdrafts or other finance which won’t appear on the Profit and Loss sheet;
  4. Other Creditors.
  5. Accruals: These are items where expenses have been incurred during that period or year end where a) the benefits have already been taken by the company but the payments have not yet been made or b) the services which have already been provided but payment has not yet been received. They are classed as a liability. When the payment comes in the following year but relates to the previous year, at year-end the balance sheet is credited in accrued expenses (accruals). This cancels the expense for that year.

*These are all added together with the Current Liabilities subtracted from the Current Assets*

Reserves

Sinking Fund

Note: The balance sheet should also include any statements and signatures by the landlord or agent required by the lease. If there is no such requirement, it is good practice for the landlord or agent, (as applicable), to sign the balance sheet to confirm approval of the accounts. There is no statutory requirement as to the form or content of the balance sheet.

NOTES

Some question the necessity of the Notes but others view them as a fundamental tool in enabling the understanding of key figures contained within the accounts as well as the accounting policies used in their preparation.

It is Appendix C in the Tech 03/11 that suggests that the following be contained in the Notes:

  1. Tax Treatment on Interest Received;
  2. Further details of debtors and creditors;
  3. Disclosure of trust bank account details;
  4. Reserve funds including movement on reserves;
  5. Transactions with related or concerned parties.

Having said that, the Notes are only relevant to information contained within the accounts so if there are no transactions with related or concerned parties for example, then the Notes will not contain any reference to them.

It is important to note that there are items on the statutory accounts that don’t appear on the service charge accounts such as share capital, depreciation and tax on profits.

In addition there is company expenditure that should not be taken from the service charge accounts such as company filing fees and Company Secretary fees.

 

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