Finance GlossaryAccruals BasisAn accounting convention sometimes described as the 'matching principle' in which a transaction is reflected in the accounts for the period in which the substance of the arrangement takes place (e.g. when a service is provided or when goods are delivered) as opposed to the period during which a contract is entered into, or in which payments are made or received. Local Authority revenue accounts are compiled on an accruals basis. Administrative BuildingsBuildings that either have a shared use or are not charged directly to a service, such as the Guildhall. The costs relating to all such buildings (sometimes called central accommodation) are usually pooled and then allocated to the users of the buildings on some appropriate basis (usually the floor area occupied by each user). Assumed National Council Tax (ANCT)The difference between the government's assumption of total spending and total government grants for all local authorities is divided by the total national council tax base to produce an assumed national council tax rate. Balance SheetA statement of the recorded assets, liabilities and other balances at a specific date at the end of an accounting period. BalancesSurplus of income over expenditure which may be used to finance expenditure. Balances are not normally earmarked in the accounts for specific purposes, but represent resources set aside for such purposes as general contingencies and cashflow management. Budget HeadEach section of the budget for which estimates are produced and control exercised. Budget heads can be objective or subjective (i.e. service related or expenditure based) and therefore may be a cost centre e.g. the Crematorium, or an individual item of expenditure/income e.g. employees, fees. Individual budget heads are the basis of detailed budgetary control. Budget RequirementThe estimated revenue expenditure on general fund services that needs to be financed from the council tax after deducting income from fees and charges, certain specific grants including Revenue Support Grant and redistributed NDR and any funding from reserves. Capital ChargesCharges to service revenue accounts to reflect the cost of fixed assets used in the provision of services. Capital ExpenditureSpending on the acquisition or enhancement of assets either directly by the local authority or indirectly in the form of grants to other persons or bodies. Expenditure which does not fall within this definition must be charged to a revenue account. Capital Expenditure ReserveAn internal reserve to finance capital expenditure without resort to external borrowing. It can be built up by contributions from the revenue account, and capital receipts. Capital ProgrammeThe capital projects an authority proposes to undertake over a set period of time. The usual period covered by a capital programme is three to five years. Capital ReceiptsThe proceeds from the disposal of land or other assets. Capital receipts can be used to finance new capital expenditure within rules set down by the government, but they cannot be used to finance revenue expenditure. Commitment AccountingA system whereby transactions are recorded at the time they arise. Commitments are initially recorded when orders are issued or received and deleted when orders are paid or monies received. The primary function of commitment accounting is budgetary control. Committed ExpenditureExpenditure in respect of goods, services and works for which orders have been placed or tenders accepted but for which payment has not been made. ContingencyProvision made in a budget for unforeseen expenditure, a short-fall in income, or inflation in excess of any other budgetary provision which has been made. Cost CentreThe term for each individual unit to which items of income and expenditure are charged for either managerial or detailed control purposes e.g. a sports centre, a department. Council TaxThe main source of local taxation to local authorities. Council tax is levied on households within its area by the billing authority and the proceeds are paid into its Collection Fund for distribution to precepting authorities and for use by its own general fund. Council Tax BaseThe Council Tax Base of an area is equal to the number of band D equivalent properties. It is calculated by counting the number of properties in each of the eight council tax bands and then converting this into an equivalent number of band D properties (e.g. a band H property pays twice as much council tax as a band D property and is therefore equivalent to two band D properties). For the purpose of calculating revenue support grant, the government assumes a 100% collection rate. For the purposes of calculations made by a local authority of the basic amount of council tax for its area for each financial year, the authority makes an estimate of its collection rate. Current ExpenditureExpenditure on running costs such as those in respect of employees, premises, services and supplies. EstimatesThe amounts which are expected to be spent, or received as income, during an accounting period. The term is also used to describe detailed budgets, which are either being prepared for the following year, or have been approved for the current year. External AuditThe independent examination of the activities and accounts of local authorities to ensure the accounts have been prepared in accordance with legislative requirements and proper practices and to ensure the authority has made proper arrangements to secure economy, efficiency and effectiveness in its use of resources. Fees And ChargesIncome raised by charging users of services for the facilities. For example, local authorities usually make charges for the use of leisure facilities, car parking facilities, the collection of trade refuse etc. Financial RegulationsA written code agreed by an authority to provide a framework in which to conduct its financial affairs. The regulations usually cover such matters as accounting and budgeting, internal audit, ordering procedures, banking, loans and investments. Financial YearThe local authority financial year commences 1st April and finishes 31st March the following calendar year. Formula Spending Shares (FSS)Central government's assumption of spending for each local authority for a given year. The FSS is used to calculate the authority's Revenue Support Grant. General FundThe main revenue fund of a billing authority. Day-to-day spending on services is met from the fund. Spending on the provision of housing, however, must be charged to a separate housing revenue account. General Support Services & Property & Engineers SupportAn allocation to service accounts of the net cost of the administrative and professional departments which support all an authority's services. Gross ExpenditureThe total cost of providing the council's services before taking into account income from government grants and fees and charges for services. Housing Investment Programme (HIP)Annual submissions by local authorities to central government which outline the strategy for meeting housing needs and detail capital spending plans. HIP submissions are used by the Department of Transport Local Government and the Regions as the basis for issuing annual capital guidelines for housing to local authorities. Internal AuditAn independent appraisal function established by the management of an organisation for the review of the internal control system as a service to the organisation. It objectively examines, evaluates and reports on the adequacy of internal control as a contribution to the proper, economic, efficient and effective use of resources. Every Local Authority is required to maintain an adequate and efficient internal audit. National Non-Domestic Rate (NNDR)A levy on businesses, based on a national rate in the pound set by the government multiplied by the 'rateable value' of the premises they occupy. NNDR is collected by billing authorities on behalf of central government and then redistributed among all local authorities and police authorities on the basis of population. Also known as 'business rates' and the 'non-domestic rate'. Net ExpenditureGross expenditure less specific service income, but before deduction of revenue support grant. Net Present Value (NPV)An estimate of the current value of payments to be made (or received) and of non-monetary consideration to be given (or received) at future dates, involving the use of a discount formula. PreceptThe levy made by precepting authorities on billing authorities, requiring the latter to collect income from council taxpayers on their behalf. Precepting AuthoritiesThose authorities that are not billing authorities, i.e. do not collect the council tax and non-domestic rate. County councils, police authorities and joint authorities are 'major precepting authorities' and parish, community and town councils are 'local precepting authorities'. ProvisionsAmounts set aside in the accounts for a financial year to cover future expenditure on liabilities or losses that have been incurred, but are of uncertain timing or amount. ReservesAmounts set aside in the accounts for future purposes which fall outside the definition of provisions. They include general balances and reserves which have been earmarked for specific policy purposes. Expenditure is not charged directly to a reserve, but to the appropriate service revenue account. Revenue Support Grant (RSG)A grant paid by central government to aid local authority services in general, as opposed to specific grants, which may only be used for a specific purpose. The grant makes up the difference between a Council's FSS and the amount it would receive from Assumed National Council Tax and redistributed nondomestic rates. Revised EstimatesThe approved estimates for the current year, as updated. Single Capital PotIs the name given to the method by which central government is to allocate capital support to local authorities as from the financial year 2002-2003. In preparation for the new system, local authorities are required to prepare Asset Management Plans (AMPs) containing information about the authority's assets and aimed at optimising their maintenance, utilisation and development and to identify surplus assets for disposal. Statement Of AccountsLocal authorities are required to prepare, in accordance with proper practices, a statement of accounts in respect of each financial year, which contains an explanatory introduction, summarised statements of income and expenditure on funds and of capital expenditure, a statement of accounting policies, consolidated revenue account, balance sheet and cash flow statement and notes as prescribed in the Accounts and Audit Regulations 1996. The statement must be approved by a resolution of a committee or the full council of the local authority as soon as reasonably practicable and in any event within six months after the end of the financial year in question. The statement must be published by 1 January following the end of the financial year, regardless of whether the external audit of the accounts has been completed. Supplementary EstimateAn approved increase to a budget head during a year. A supplementary estimate is granted in accordance with an authority's financial regulations, and usually financed from a contingency provision or balances. Treasury ManagementThe management of the organisation's cash flows, its banking, money market and capital market transactions; the effective control of the risks associated with those activities; and the pursuit of optimum performance consistent with those risks. VirementThe permission to spend more on one budget head when this is matched by a corresponding reduction on some other budget head, i.e., a switch of resources between budget heads. Virement must be properly authorised as set out in the Council's Financial Regulations.
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