In order for cash in bank to be recognised as an asset in the company’s balance it must meet the criteria of an asset laid down in the IASB Framework. Those criteria are:
- control by the company
- risks & rewards of ownership
- future economic benefits are expected to flow to the entity
Money held in your bank accounts which, under contract, are charity money does not meet those criteria. Therefore, such amounts must be excluded from your bank balance on the company’s balance sheet.
There is no specific guidance in IFRS on applying these definitions to cash arrangements.
The treatment of such money depends on the extend, contracts and arrangements between the company and the relevant charities.
Keeping a separate bank account for each cash stream is a good idea in terms of financial control. At any point you need to ensure that there is a clear distinction between money to be treated as cash and cash equivalent and those amounts for charity.
At the year-end financial statements any such amounts still held must be excluded from the Cash and Cash Equivalent balance of the company, and a separate disclosure must be made.