All organizations must choose an accounting method for financial reporting purposes

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

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)

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

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

Sometimes expenses are purchased in advance and used over future months Service contracts Medical/lab supplies

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

$200 (FY 08) CashRevenue $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) DebitCreditDebitCredit

Fiscal year end is 6/30/07 (FY07) $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) DebitCreditDebitCredit CashExpense

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

Accruals are recorded on the transaction date Transaction date is when a financial event occurs whether or not cash is exchanged Services are performed (diagnostic testing) Product is sold (books) Inventory is received

$200 (FY 08) Cash DebitCredit $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) DebitCreditDebitCredit Fiscal year end is 6/30/07 (FY07)

Cash DebitCredit $50 Expense DebitCredit Accts Payable DebitCredit $50$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) Fiscal year end is 6/30/07 (FY07)

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

Prepaid Expenses Service 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

DebitCredit Cash CreditDebit Expense $1,800 1) 4/1/07Pay for 1 year service contract Fiscal year end is 6/30/07 (FY07) 2) 4/30/07 3) 5/31/07 Use 1 months contract expense 4) 6/30/07Use 1 months contract expense

$1,350 DebitCreditDebitCredit $150 Cash CreditDebit $150 ExpensePrepaid Expenses $1,800 1) 4/1/07 2) 4/30/07 3) 5/31/07 Pay for 1 year service contract Record 1 months contract expense Fiscal year end is 6/30/07 (FY07) 4) 6/30/07Record 1 months contract expense $150 $450 $1,650 $150

$1,350 DebitCreditDebitCredit $150 Cash CreditDebit $150 ExpensePrepaid Expenses $1,800 1) 4/1/07 2) 4/30/07 3) 5/31/07 Pay for 1 year service contract Record 1 months contract expense Fiscal year end is 6/30/07 (FY07) 4) 6/30/07Record 1 months contract expense $150 $450

FY07: Service Contract Expense $1,800 FY08: Service Contract Expense $ 0 FY07: Service Contract Expense $ 450 FY08: Service Contract Expense $ 1,350

Service Contracts Service contract expense – FY07 Cash method = $1,800 Accrual method = $450 Service contract expense – FY08 Cash method = $0 Accrual method = $1,350

Deposits CSU 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

Deferred Revenue Sports/youth camps are paid in advance Revenue isnt earned until the camp takes place Example: 2 week camp costs $500 ($50 per day) Dates of the camp are 6/25/07 – 7/6/07 (M-F)

DebitCredit $500 Cash CreditDebit Revenue $500 1) 5/15/07Participant signs up for 2 week camp – deposit $500 Fiscal year end is 6/30/07 (FY07) $500 2) 6/25/07Camp begins 3) 7/6/07Camp Ends

$500 DebitCreditDebitCredit $250 Cash CreditDebit 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) Fiscal year end is 6/30/07 (FY07) $250 2) 6/25/07Camp begins

FY07: Camp Revenue $500 FY08: Camp Revenue $ 0 FY07: Camp Revenue $250 FY08: Camp Revenue $250

Deferred Revenue Tuition paid in June for summer semester ending in August Revenue is earned evenly over the entire semester Football season tickets sold in June This hasnt been earned until the football season begins in September

Valerie Monahan Heidi Barclay Janice Inman Laura Streit