Matching Accounting and Financial Reporting to the Asset Life Cycle Bob Mahaney, CPPS Mgr, Program Accounting & Finance MD Anderson Cancer Center

Who is in the room? New member this year First NES

Who else is in the room? Type of Business – University – Contract Property/Federal – State/Local Government – Private

Learning Objectives Learn basics of asset accounting. Learn the accounting transactions associated with each phase of the asset live cycle. Use financial reports to benefit asset management.

Asset Accounting Welcome to the land of debits & credits. OMG! Relax. – It’s just a new language. – It’s how management sees you.

Asset Accounting Law If you like physics… Newton’s Third Law. For every action, there is an equal and opposite reaction. You will like asset accounting. Accounting magic. For every debit, there is an equal and offsetting credit. Debits always equal credits.

Basic Asset Life Cycle Taken together, the steps or phases experienced by an item of property from acquisition through disposition. NPMA Fundamentals of Personal Property Management, Glossary - Chapter 12, page 5

Budget Develop asset budget request. Submit budget request for approval. Receive approved asset budget.

Acquisition Process asset requisition. Procurement issues asset PO. Asset received and tagged. – Hit our comfort zone here. Accounts Payable matches & pays invoice.

Add to Asset Registry Asset added to registry. – Owning department established. – Useful life set. – Depreciation starts.

Asset In-Service What happens in this cycle. – Physical inventory. – Depreciation. – Transfers. – Maintenance

Final Disposition Asset no longer providing acceptable level of service. Determine final dispostion. – Trade-in on new asset. – Sell. – Scrap. – Donate.

Back to Debits and Credits Basic accounting equation. Assets = Liabilities + Owner Equity Assets = Liabilities + Fund Balance

Financial Statements Income Statement Revenues Expenses Net Profit or Margin

Financial Statements Balance Sheet Assets Liabilities Owners Equity/Fund Balance

Income Statement Asset Revenues Revenue – Donated capital assets. – Gain/loss on final disposition. – Income from sale of non-capital assets.

Income Statement Asset Expenses Expense. – Cost of non-capital assets. – Depreciation. – Gain/loss on final disposition. – Maintenance.

Balance Sheet Assets Asset Section – Total cost of capital assets. – Pre-payments. Liabilities Section – Accumulated Depreciation. – Equipment Held in Trust. Entity is the custodian but does not have title. Owners Equity/Fund Balance

Two Types of Assets Capital assets – Useful life greater than one year. – Meet capitalization threshold. Non-capital assets – Does not meet capital asset criteria. – Considered to be controlled, high risk, or contractually required to track.

Non-Capital Assets Expensed when purchased – Operating cost. – No additional accounting entries. – No gain or loss at final disposition.

Capital Assets Capitalized when purchased. – Depreciation is operating cost. – Monthly depreciation entries. – Asset transfer between departments may require journal entry. – Gain or loss is recorded at final disposition.

Capital Asset Transactions Capitalized when purchased. – Recorded on Balance Sheet. – Exchange of assets. Give up asset (Cash) Add asset (Capital Equipment)

Capital Asset Transactions Monthly – Depreciation expense. Activity driven – Transfers between departments. – Asset disposals.

Life Cycle Matching Accounting Transactions. Financial Statement Impact.

Non-Capital Assets Acquisition - I/S Expense. Disposal – I/S Revenue.

Capital Assets Acquisition – B/S Asset Exchange. Acquisition – Equip Held In Trust.

Capital Assets (contd.) Depreciation - I/S Expense. Depreciation – B/S Liability.

Capital Assets (contd.) Departmental Transfer – B/S Exchange.

Capital Assets (contd.) Final Disposition – I/S and B/S. – Trade-in amount added to replacement asset.

Financial Reports Snapshot of the financial results of an entity. – Frequency – Annual and monthly. Reporting at the entity level. Reporting at department level. Can be your new best friend.

I/S Talks Revenues Revenue – Donated capital assets. Validate addition of donated capital assets. – If you did not record any, » Drill down and find the source of the dollars. » Departments don’t tell you everything.

I/S Talks Revenues Revenue – Gain/loss on final disposition. Does this match registry disposals? – If not, drill to the dollars. – Is the difference an omission or an accounting adjustment? » You just need to know.

I/S Talks Revenues Revenue – Gain/loss on final disposition. Use departmental statements to highlight problematic departments. – Is the loss missing assets? – Is the loss underutilization of assets? – Is the gain really a great deal?

I/S Talks Revenues Revenue – Income from sale of non-capital assets Did you sell any non-capital assets? – If not, drill to the numbers. Does the amount look reasonable?

I/S Talks Expense Expense. – Cost of non-capital assets. Typically called Minor Equipment. Difficult to track these results to asset system. – Requires specific account numbers to track. – Most rely on asset system to identify the assets.

I/S Talks Expense (Contd) Expense. – Depreciation. Normally, a large number on the I/S. If charged to department level, it has benefits to asset management. – Departments will monitor assets closely. – Departments will report transfer with promptness. – Departments will work to find missing assets.

I/S Talks Expense Expense. – Gain/loss on final disposition. Does this match registry disposals? – If not, drill to the dollars. – Is the difference an omission or an accounting adjustment? » You just need to know.

I/S Talks Expense Expense. – Maintenance. Usually summarized at a high level. – Building – Equipment Frequently tracked in with PM software by Facilities.

B/S Talks Too Asset Section. – Total cost of capital assets. Presented by Type (Building, Equipment…). Ties to AM sub-ledger balances. – Sub-ledger? » The Asset Management system.

B/S Talks Too Asset Section. – Pre-payments. Vendor required down payment to build an asset. Not recorded in the AM system until asset. received and invoices paid. Good to monitor balance for changes.

B/S Talks Too Liability Section. – Accumulated Depreciation. Total depreciation expense for capital assets. Balance ties to AM sub-ledger.

B/S Talks Too Liability Section. – Equipment Held In Trust. Total liability for equipment where entity is custodian but does not have title. Monitor balance for changes. – Balance will change. Validate balance with Grants & Contracts at least annually.

Talking to Management Monitor I/S and B/S for opportunities. – Highlight value added by Asset Management. – Develop AM system reports to supplement financial report changes. – Shine spotlight on non-compliant departments.

Final Thought Focus management on the value of Asset Management. Get your NPMA certification. Management likes certifications. I’m a certified professional and bring “value through professional asset management”.

Questions?

Contact Information Bob Mahaney, CPPS Thank you for attending NES 2014.