Grant Income For Capital Purchases

by Susan
(Ontario, Canada)

We have received a grant for a capital purchase. What would be the best account to credit the income to? If I enter it as "Other Income" it distorts my budget and previous year comparisons.

Hi Susan,

If the grant is expected to be a non-recurring event, I'd code the receipt of funds to the "Other Income and Expense" section of your income statement ... which can be found in your chart of accounts directly after net operating income accounts.

If the grant is expected to be a recurring event, I'd code the funds to the "Opertaing Revenue" section of your income statement.

Whatever account you decide to code it to, it is okay if the amount(s) skew your budget and/or prior year comparisons as it is explainable. When you do your budget review, just write the reason for the variance in your explanation column.

If your company does forecasting* (revising the budget once or twice a year to reflect new information / events not known when preparing the budget), you should adjust it for the receipt of the grant funds.

*Forecasting usually involves updating forecasted months with actuals. For example, if you were doing a three month review, you would have 3 months actuals followed by 9 months of updated budget data. If you were doing a 7 month review, you would have 7 months actuals followed by 5 months of updated budget data.