You open the accounts pack. There is a covering report. There is a page with two columns of numbers. There is a page that looks like a snapshot of where the charity stands. And there is a letter from someone called an independent examiner.
You are a trustee, and you have been told you need to approve this document at the next board meeting.
Here is the thing most trustees never get told: the accounts are not a test you have to pass. They are a story your charity is telling about its year, in four parts. Once you know how to read each part, the story is straightforward, and it also tells you something useful about how the charity is doing.
This guide is for trustees and founders of small UK charities, under £500,000 of annual income, whose accounts are prepared on the receipts and payments format. If your charity is a charitable company, or your income is over £500,000, your accounts will be prepared on a different basis and will look different from what is described here. This guide walks through the receipts and payments version, which is what most small charities use. If you want the wider picture of who sets the accounting rules and what the income thresholds mean, start with the overview guide on how charity accounting works, then come back here.
One quick note on the £500,000 figure. It is the threshold that applies from October 2026 onwards. Before that date, the threshold for receipts and payments is lower, but the way this guide walks through the accounts applies just the same.
If your board needs help building confidence in governance and accounts review, you can book a free call. We will help make this part of trusteeship feel routine rather than stressful.
The four parts of the document
Before the details, it helps to know what you are looking at. A small charity’s accounts pack has four parts, and each one does a different job.
The first is the trustees’ annual report; the narrative part, words rather than numbers. The second is the receipts and payments statement, a two-column page with money in on one side and money out on the other. The third is the statement of assets and liabilities, a snapshot of where your charity stood at the year-end date. The fourth is the independent examiner’s report, a letter from the independent person who checked the accounts.
Each part tells you something different about the year. Taken together, they are the story. Let me walk through them one at a time, and for each one, give you the single most useful thing to look for.
Part one: the trustees’ annual report
The trustees’ annual report is usually the first thing in the pack. It is words, not numbers, and a lot of trustees skip it for exactly that reason. They should not.
The report tells you what your charity did during the year: what activities were run, what changed, who the trustees are, and what the main events were. It is written by the trustees; even when the day-to-day drafting is done by the CEO, an accountant, or a staff member, the trustees are the ones approving every word of it.
Here is the analysis point. Read the trustees’ report before you read the numbers, not after. The numbers on their own do not mean much. A £15,000 drop in income looks alarming until you read in the report that the charity deliberately wound down one programme. A £20,000 increase looks great until you read that it was a one-off legacy that will not repeat next year. The report gives you the context, and the numbers without the context are just figures on a page.
There is also a flag worth knowing about. If the trustees’ report does not mention anything that changed during the year – no new project, no staff change, no funding shift, no challenges – that is itself a signal. Every charity has something that changes over twelve months. A report that does not acknowledge any of it is either thin or it is leaving something out. Either way, it is worth asking why.
Part two: the receipts and payments statement
This is the page that scares most trustees. It should not. It is simpler than it looks.
The statement has two halves. The top half is receipts – money the charity received during the year. Donations, grants, income from events, anything coming in. The bottom half is payments – money the charity spent. Staff costs, project costs, rent, anything going out. The difference between total receipts and total payments is the change in the charity’s funds for the year. More receipts than payments, and the charity ended the year with more money than it started with. More payments than receipts, and it ended with less.
One more thing to know about this page: the receipts and payments are split into different fund types. Restricted funds are money the charity received for a specific purpose – a grant for a particular project, a donation given for a specific piece of work. Legally, that money has to be spent on what the donor specified. Unrestricted funds are everything else: money that the trustees can decide how to spend, as long as it is within the charity’s purposes.
The analysis point for this page is to look at where the money is coming from. Picture a small charity with total receipts of £180,000. Of that, £150,000 is from one local authority grant, £20,000 is from individual donations, and £10,000 is from fundraising events. That is 83% of the income from a single source.
Most small charities depend on one or two big funders, and that is normal. But the higher the share from a single source, the more exposed the charity is if that source stops. As a rough guide – not a regulatory rule, just practical sense – if any one source is more than two-thirds of your income, it is worth a board conversation about what would happen if it went away. You do not have to fix it tomorrow. You just have to name it. There is more on building a steadier income in the guide to charity income that does not depend on one source.
Part three: the statement of assets and liabilities
This is the snapshot – where your charity stood on the last day of the financial year.
It lists what the charity had at year-end: cash in the bank first, then anything else of value the charity owned, such as money owed to it, investments held, or equipment. And separately, anything the charity owed at year-end; bills not yet paid, loans, money due to others.
The most important figure here is your closing cash funds, the total cash the charity had at year-end. That figure links directly back to the receipts and payments statement and tells you the cash position you ended the year in. Like the receipts and payments page, it is split between restricted and unrestricted funds.
This is the single most useful thing in this guide, so it is worth slowing down on. The closing cash funds figure on its own can be misleading. What matters is how much of it is restricted and how much is unrestricted.
Picture two charities with the same closing cash funds of £45,000. Charity one has £40,000 in restricted cash and £5,000 in unrestricted. Charity two has £5,000 in restricted and £40,000 in unrestricted. Same cash position on paper. Very different financial flexibility. Charity one can only spend £5,000 freely; the other £40,000 is locked to specific donor-designated projects. Charity two has £40,000 that the trustees can actually decide what to do with.
So when you look at this page, do not just look at the total cash. Look at the split between restricted and unrestricted. That is what tells you what your charity can actually do; whether it has room to absorb a surprise, cover a quiet month, or take an opportunity, or whether almost everything it holds is already committed.
Part four: the independent examiner’s report
If your charity’s income is over £40,000, your accounts have to be checked by an independent person; someone who is not a trustee, not an employee, and not involved in running the charity day to day. That person produces a short report which sits inside your accounts pack, usually near the end. (The £40,000 figure is the threshold from October 2026; before that date, it is lower. The overview guide covers the thresholds in full.)
The examiner’s job is to compare your accounts to your underlying records, check that the accounts follow the rules, and look for anything that does not add up. This is different from a full audit, which is a deeper check required at much higher income levels. An independent examination is a structured review, and the report reflects that.
Here is the analysis point, and it is a specific one. The examiner’s report has two sections. The first, Section A, is the standard statement confirming that the examination was carried out and the accounts are consistent with the records. The second, Section B, is called Disclosure, and the examiner only completes it if they have something to flag. The official Charity Commission template says exactly that: complete this section only to highlight material matters of concern.
So the check is simple. If the Disclosure section is empty or states that no matters arose, that is a clean report, and there is nothing to discuss. If the Disclosure section has anything in it at all, that is the examiner formally saying: this is something the trustees should know about. It might be a record-keeping issue, a question about how something has been treated, or a concern about the charity’s financial position.
Whatever it is, do not approve the accounts until you have discussed it as a board. That section exists specifically to give the examiner a way to raise concerns with the trustees. Treating anything in it as routine defeats the entire point of having an independent examination.
Reading the accounts is one piece of the wider job of trustee oversight. If your board wants help getting confident on accounts review and financial governance, a free 30-minute clarity call is a straight conversation, no sales pitch, and you will leave with a clearer sense of where to start.
What good looks like when you put it together
The four parts are a sequence for a reason. The report tells you what happened. The receipts and payments statement tells you what came in and went out, and where the money came from. The statement of assets and liabilities tells you what you were left holding, and how much of it you can actually use. The examiner’s report tells you whether an independent person found anything to bring up.
Read in that order, the accounts stop being a wall of numbers and become a coherent account of the year. A trustee who reads the report first, checks the income mix, looks at the restricted-unrestricted split in the closing cash, and reads the Disclosure section is doing real oversight, not pretending to understand a document they were handed two weeks ago.
A note on getting it right
This guide explains how to read receipts and payments format accounts for a charity under £500,000 of income. It is general information for trustees and founders, not advice on your charity’s specific accounts, and it should not be treated as such.
For the official guidance, the Charity Commission publishes detailed material on charity reporting and accounts, including the receipts and payments accounts pack (CC16) and its guidance for trustees on independent examination. For your charity’s specific situation, speak to a charity-friendly accountant – particularly if anything in the accounts, or anything in the examiner’s Disclosure section, does not make sense to you.
The thresholds mentioned here are the ones taking effect for England and Wales from late 2026, and were checked in May 2026. Scotland and Northern Ireland have their own rules; charities there should check OSCR or CCNI.
Three things to do this week
You do not need a financial background to start. Three things, each about ten minutes.
First, find your charity’s most recent accounts pack and identify the four parts – the trustees’ report, the receipts and payments statement, the statement of assets and liabilities, and the examiner’s report if your charity has one. Do not read them yet. Just locate them, so you know what you are holding.
Second, read your charity’s trustees’ annual report from start to finish. Note one thing the report mentions that changed during the year, and fix it in your mind before you look at any of the numbers. That is the context the numbers will need.
Third, look at the receipts section, identify the largest single source of income, and work out roughly what percentage of total receipts it represents. If it is over two-thirds, that is a conversation worth having at your next board meeting.
Do this within the next two weeks. Each step takes about ten minutes, and together they will change how you read your accounts from here on.
If, having done that, you want help building the kind of board habit where reading the accounts feels routine rather than stressful, that is the work we do. You can book a free clarity call, a straight conversation with no sales pitch. And if part of the difficulty is that the underlying records are a mess in the first place, the right charity accounting software can make every stage of this far less painful.
