accrual accounting

PRESENTED BY CAMPUS SERVICES

ACCRUAL ACCOUNTING

WELCOME!!!

VALERIE MONAHANHEIDI BARCLAY

ACCRUAL ACCOUNTING

ACCOUNTING METHODS

All organizations must choose an accounting method for financial reporting purposes

ACCOUNTING METHODS

What is an accounting method?The way financial events are recorded

Revenue / cash received Expenses / cash paid

The way financial position is reported Financial statements

ACCOUNTING METHODS

There are two basic types of accounting methods:

Cash Income is recorded when cash/check is received Expenses are recorded when the vendor is paid

Accrual Income is recorded when the sale occurs Expenses are recorded when the goods or services

are received (and used)

WHY DOES THE METHOD MATTER?

Government entities (including universities) are required to follow GASB standards

What is GASB?

Government Accounting Standards Board

GASB establishes accounting and financial reporting standards for government units

WHY DOES THE METHOD MATTER?

GASB Statement No. 34 requires the use of the accrual accounting method

Since governments are required to follow GASB standards, CSU is required to use the accrual accounting method

Cash Method

CASH METHOD

Sometimes expenses are purchased in advance and used over future monthsService contractsMedical/lab supplies

CASH METHOD

Expenses aren't recorded until the money is actually paid out -- even if the actual expenses were incurred in previous months

Revenues are recorded when cash is received

CASH METHOD – REVENUE EXAMPLE

$200 (FY 08)

Cash Revenue

$200 (FY 08)

1) 4/30/07

2) 5/31/07

3) 7/2/07

Fiscal year end is 6/30/07 (FY07)

Receive order -- test blood sample

Test results completed and invoiced

Customer pays invoice – cash deposit made in following fiscal year (FY08)

Debit Credit Debit Credit


CASH METHOD – EXPENSE EXAMPLE

$50 (FY 08) $50 (FY 08)

1) 4/30/07

2) 5/31/07

3) 7/2/07

Place order for lab supplies

Receive supplies and use them

Pay the vendor invoice in following the following fiscal year (FY08)


Cash Expense

Accrual Method

ACCRUAL METHOD

The term accrual refers to any individual entry recording revenue or expense in the absence of a cash exchange

ACCRUAL METHOD

Accruals are recorded on the transaction date

Transaction date is when a financial event occurs whether or not cash is exchangedServices are performed (diagnostic testing)Product is sold (books) Inventory is received

$200 (FY 08)

ACCRUAL METHOD – REVENUE EXAMPLE

CashDebit Credit

$200

RevenueAccts Receivable

$200$200 (FY 08)

1) 4/30/07

2) 5/31/07

3) 7/2/07

Receive order -- test blood sample

Test results completed and invoiced

Customer pays invoice – cash deposit made in following fiscal year (FY08)



ACCRUAL METHOD – EXPENSE EXAMPLE

CashDebit Credit

$50

ExpenseDebit Credit

Accts PayableDebit Credit

$50$50 (FY 08) $50 (FY 08)

1) 4/30/07

2) 5/31/07

3) 7/2/07

Place order for lab supplies

Receive supplies and use them

Pay the vendor invoice in the following fiscal year (FY08)


CASH VS. ACCRUAL

Within this simple difference lies a lot of room for error — or manipulation.

Depending on which method is used, financial reporting may be affected at the financial year end

CASH VS. ACCRUAL

Subledger

Revenue $0Expense $0

Net Income $0

Subledger

Revenue $200Expense $ 50

Net Income $150

Accrual MethodCash Method

FY07

CASH VS. ACCRUAL

General Ledger

Cash $0

Fund Balance $0

General Ledger

Cash $ 0Accts Receivable $200

Accts Payable $ 50

Fund Balance $150


FY07

CASH VS. ACCRUAL

Subledger

Revenue$200

Expense $ 50

Net Income$150

Subledger

Revenue $0Expense $0

Net Income $0


FY08

CASH VS. ACCRUAL

General Ledger

Cash$150

Fund Balance $150

General Ledger

Cash $150Accts Receivable $ 0

Accts Payable $ 0

Fund Balance $150


FY08

OTHER ACCRUALS - ASSETS

Prepaid ExpensesService contracts

Paid once per year Should be expensed in 12 equal amounts

Example: Service contract $1,800 paid for on 4/1/07 Contract covers 1 year: 4/1/07 – 3/31/08

Debit Credit

CASH METHOD – SERVICE CONTRACT

CashCreditDebit

Expense

$1,800 $1,800

1) 4/1/07 Pay for 1 year service contract


2) 4/30/07

3) 5/31/07

Use 1 month’s contract expense

Use 1 month’s contract expense

4) 6/30/07 Use 1 month’s contract expense

$1,350

Debit CreditDebit Credit

$150$150$150

ACCRUAL METHOD – SERVICE CONTRACT

CashCreditDebit

$150

ExpensePrepaid Expenses

$1,800 $1,800

1) 4/1/07

2) 4/30/07

3) 5/31/07

Pay for 1 year service contract

Record 1 month’s contract expense



4) 6/30/07 Record 1 month’s contract expense

$150$150

$450$1,650 $150

$1,350


$150$150$150

ACCRUAL METHOD – SERVICE CONTRACT

CashCreditDebit

$150

ExpensePrepaid Expenses

$1,800 $1,800

1) 4/1/07

2) 4/30/07

3) 5/31/07

Pay for 1 year service contract




4) 6/30/07 Record 1 month’s contract expense

$150$150

$450


FY07:Service Contract

Expense $1,800


Expense $ 0


Expense $ 450


Expense $ 1,350



Service ContractsService contract expense – FY07

Cash method = $1,800 Accrual method = $450

Service contract expense – FY08 Cash method = $0 Accrual method = $1,350


DepositsCSU Contracts with an outside party who

requires a deposit. ½ is often required in advance – may be

refundable An expense is not booked until the event takes

place

OTHER ACCRUALS - LIABILITIES

Deferred RevenueSports/youth camps are paid in advance

Revenue isn’t earned until the camp takes placeExample:

2 week camp costs $500 ($50 per day) Dates of the camp are 6/25/07 – 7/6/07 (M-F)

Debit Credit

$500

CASH METHOD – CAMP EXAMPLE

CashCreditDebit

Revenue

$500

1) 5/15/07 Participant signs up for 2 week camp – deposit $500


$500

2) 6/25/07 Camp begins

3) 7/6/07 Camp Ends

$500


$250 $250

ACCRUAL METHOD – CAMP EXAMPLE

CashCreditDebit

RevenueDeferred Revenue

$500

1) 5/15/07

3) 6/30/07

Participant signs up for 2 week camp – deposit $500

Record camp revenue earned in FY07 (5 days)


$250 $250

2) 6/25/07 Camp begins


FY07:Camp Revenue $500

FY08:Camp Revenue $ 0





Deferred RevenueTuition paid in June for summer semester ending

in August Revenue is earned evenly over the entire

semesterFootball season tickets sold in June

This hasn’t been earned until the football season begins in September

QUESTIONS ?

ACCRUAL ACCOUNTING

CAMPUS SERVICES

Valerie Monahan 1-3001

Heidi Barclay 1-4148Janice Inman 1-6752Laura Streit 1-7099

http://busfin.colostate.edu/cs.aspx

accrual accounting

Documents

financial year end cash

method matter

invoice cash deposit

financial reporting

gasb standards

accrual methodcash

way financial events

vendor invoice