How do I account for a grant that has to be spent on something specific?

England and Wales: researched. Scotland: researched — the same SORP treatment applies, and the Scottish definition of gross income expressly excludes agency pass-through income. Northern Ireland: researched — the same SORP treatment applies.

A restriction on spending is not the same as a condition on recognition

The two sound like the same idea and they are not. A restriction on how money may be spent does not, by itself, postpone when you recognise it as income. Only a genuine performance-related condition does that. Where a grant does impose a specified future performance-related condition, income is recognised only as that condition is actually satisfied, and a liability sits on the balance sheet in the meantime for the part not yet earned. Recognising the whole grant on receipt, simply because the cash has arrived, overstates income for the year and can distort any threshold test that depends on that figure.

Read the award letter before you touch the ledger

Every grant’s treatment starts with what the funder’s own documents actually say, not with a general assumption about how grants normally work. Grants are conventionally taught as non-exchange transactions, and the SORP does start from that position — but a grant paid specifically to secure the provision of particular goods or services can instead be contract income, in which case a different revenue model applies. Which one you are looking at is a question the award letter answers, not a default you can apply without reading it.

The recognition point also matters beyond this one grant’s own entry. Gross income — the statutory figure behind every threshold test in this hub — is measured on what is actually recognised in the year, not on cash received. A grant recognised in the wrong year moves that year’s gross income in the wrong direction, which can in turn move a threshold determination made using it. England and Wales and Northern Ireland share the same statutory wording for gross income; Scotland’s own definition is worded differently and separately excludes agency pass-through income. Getting the recognition timing right on this page is therefore not only an accounting nicety for this grant — it is an input to decisions made elsewhere.

Whether this grant is “non-exchange” at all is a genuine judgement call

Two Tier A sources are in tension here, and the honest answer is to say so rather than pick a side and hide the disagreement. The SORP’s own text treats grants as non-exchange transactions by default, with presentation as income from charitable activities as the exception, where payment secures particular goods or services. The SORP-making body’s own published webinar Q&A takes a broader view: it answers that a government grant to carry out certain activities “would be considered to be an exchange transaction” — a reading that would catch more grants than the SORP text alone suggests. This page does not resolve that tension for you. Apply the SORP’s own tests to your particular grant, and treat the classification as a judgement rather than a bright line either source settles on its own.

One thing that is settled: there is no accruals-model shortcut

Whatever the classification question above lands on, one rule is clear either way: the SORP does not permit the FRS 102 Section 24 accrual model for government grants. The performance model — recognise as conditions are met, carry the rest as a liability — is required for all grants, not a choice between two acceptable methods. Note also that a charity’s SORP tier is reassessed every single year on that year’s gross income alone, with no smoothing across years — worth remembering if the grant you are recording spans more than one reporting period, since the charity’s own tier can change under it while the grant is still running.

Common mistake: recognising the whole grant on receipt because the cash has arrived

Cash in the bank feels like income. Where the grant imposes specified future performance-related conditions, income is recognised only as those conditions are satisfied, and a liability is recognised in the meantime. Recognising it all up front overstates income and distorts the threshold tests that depend on it.

Common mistake: treating a restriction on use as if it prevented recognition

A restriction and a condition sound like the same thing. They are not: a restriction on how money may be spent does not by itself postpone recognition. Only a performance-related condition does.

Common mistake: assuming every grant is non-exchange

Grants are conventionally taught as non-exchange, and the SORP does start from that position. A grant paid to secure the provision of particular goods or services may instead be contract income, in which case a different revenue model applies — a genuine judgement area, not a bright line.

Worked example

A two-year grant for a named post is paid in advance in a single instalment. The award requires the post to be filled and quarterly reports submitted. Income is recognised as the service is actually delivered, with the unearned balance carried as a liability, not as a restricted fund balance. The outcome: income is recognised across the full two years rather than all at once, with a liability rather than a fund balance sitting on the books at the first year end.