Grant money received before it is spent
How a non-profit can hold an advance grant payment as a liability and release it to income each month by journal, and fix a release that was wrong.
By Achekam · · 5 min read · For Non-profit businesses in South Africa, Nigeria, Kenya
A foundation pays the whole first year of a literacy programme up front, in January. If your books record all of it as income that month, January shows an enormous surplus and every month after it a deficit, even though the programme runs steadily all year. A board reading those figures in March might think the organisation is flush. A funder reading them might ask why its money seems to have vanished.
The problem is timing. The money arrived early; the work it pays for has not happened yet. Until the programme spends it, most of that payment is not really yours to call income. It is money you are holding to do something you have promised.
This article shows how to reflect that in Achekam using a liability account and monthly journals, and why the method should be agreed with your accountant before year end.
Why unspent grant money is not yet income
Many grant agreements tie the money to specific activities and costs, and require any unspent balance to be returned or reported. While those conditions are unmet, the organisation owes the funder either the work or the money. That is the character of a liability.
Treating advance grants this way does three useful things:
- your monthly results show the programme's income matching its spending, so a surplus or deficit means something;
- your balance sheet shows, at any date, how much grant money is still committed to future work;
- a funder can see at a glance how much of its money remains unspent.
Not every grant works like this. An unconditional gift for general purposes may be income when it arrives. Which grants are deferred, and when they are recognised, depends on the agreement and on the reporting framework your organisation follows, so this is a decision for your accountant, not a default to apply blindly.
A liability account for each grant
Your ledger starts from a standard chart of accounts, and you can add, rename or switch off accounts. For each grant you defer, add a liability account named so nobody can mistake it, for example "Grant received in advance – Literacy Foundation 2026".
Pair it with an income account for the same grant, such as "Grant income – Literacy Foundation 2026". One liability and one income account per grant keeps each funder's money readable on its own and makes the year-end note simple.
When the tranche arrives, record it against the liability, not the income account. If the money comes in through the bank statement, post the bank line to the grant's liability account. Recording a grant tranche that arrives in the bank covers that step in detail.
Monthly journals that release what was spent
Each month, once the programme's costs for the month are posted, move the matching amount from the liability to income with a manual journal:
- Debit the grant's liability account;
- Credit the grant's income account;
- Amount: the eligible costs the grant paid for that month;
- Description: the month, and where the cost figure came from.
Work out the amount from the grant's expense accounts or your budget comparison, not from a twelfth of the grant. If the programme spent little in a slow month, release little. If the funder budgeted for a training intake in May, May's release will be larger. Income then follows the work, which is the whole point.
A few practical rules:
- Post the release before you close the month. Achekam refuses a journal dated in a closed month, and months can be soft-closed, hard-closed and locked. Reopening a hard close needs a second approver, so a late release is far more trouble than an early one.
- Every journal must balance. An unbalanced journal is refused.
- Never release more than the liability holds. If costs exceed the grant, the excess is your organisation's cost, not more grant income.
Management accounts then show an income statement for any period you choose, beside the period before, and a balance sheet at period end, both added up from your own journals. The balance sheet line for the liability tells you how much grant money remains unspent at that date.
Reversing a release that was wrong
Mistakes happen: a cost was later found to be ineligible, a release used the wrong month's figure, or a supplier bill was posted to the wrong grant.
A posted journal in Achekam is corrected only by a reversal, never by editing or deleting it. To fix a wrong release, reverse the original journal and post a new, correct one. The ledger then shows the original, its reversal and the correction, with dates. That history is exactly what an auditor or funder wants to see: what happened, when it was found, and how it was put right.
If the month containing the wrong release is already closed, post the reversal and the correction in the current open month, and explain it in the next report to the funder.
Agreeing the method before year end
Year end is the worst time to discover that your accountant would have treated a grant differently. Have the conversation early, and agree:
- Which grants are deferred. Conditional, purpose-tied grants usually are; unconditional gifts may not be.
- How the release is measured. By eligible costs incurred, by activities completed, or another basis the agreement sets.
- What counts as an eligible cost. Read the agreement's budget and any rules on overheads.
- How unspent balances are handled when a grant ends, whether returned, carried forward with the funder's consent or released.
- What the annual financial statements will disclose about grants received in advance.
Investopedia's explainer on deferred revenue shows why payment received before something is delivered is treated as a liability until it is earned. Your accountant will tell you how that reasoning applies to grants under the framework your organisation reports on.
For laying out the accounts across all your grants, see keeping restricted funds apart in your chart of accounts. To compare what each grant has spent with its budget, see tracking grant spending against the budget.
Pick the grant you received most recently, check whether it was booked as income or held as a liability, and raise it with your accountant this month rather than at year end.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
