1.2 Full Accrual Basis of Accounting
GASB Statement 34 requires that institutions that report as Business Type Activities (BTAs) follow accrual accounting. Under accrual accounting, revenue is recognized when earned and expenses are recognized when accrued.
Reference: “Financial Accounting and Reporting Manual for Higher Education Release”, © 2001 National Association of College and University Business Officers, Section 300.
Some examples are as follows:
Deferred revenue results from an exchange transaction in which resources have been provided to an institution for services or goods that will be delivered in the future. A liability (deferred revenue) should be recorded until the institution provides the service or activity. When the service is provided, the liability should be eliminated and the revenue recognized.
When goods or services are received, a liability should be recorded, unless cash is immediately paid. At fiscal year end, accounts payable and accrued liabilities should be recorded. Sometimes estimates must be made for interest and utilities that have been incurred but not billed. If payroll dates do not coincide with the fiscal year end, accruals should be made for accrued salaries.
Note: When a purchase order is issued, the budget is ‘encumbered’ so that funds are reserved for that purchase. When the good or service is received, the encumbrance should be liquidated, along with the debiting expense/crediting payable for the exact amount of the purchase. When the check is written for payment, the accounting transactions will debit the payable and credit cash.
1.2.1 Current versus Non-Current
GASB Statement 34 requires institutions that report as BTAs to display assets and liabilities on a Statement of Net Assets in a classified format distinguishing between current and long-term assets, and current and long-term liabilities, respectively.
Current Assets include:
- Cash and Cash Equivalents
- Short-Term Investments
- Account Receivables (Net)
- Other Current Assets
Non-Current Assets include:
- Notes Receivable (Net)
- Capital Assets (Net)
Accounting Research Bulletin 43 defines current liabilities as follows: “The term current liabilities is used principally to designate obligations whose liquidation is reasonably expected to require the use of existing resources properly classifiable as current assets, or the creation of other current liabilities.”
Current Liabilities include:
- Accounts Payable and Accrued Liabilities
- Deferred Revenue
- Amounts Held for Others (e.g. Agency Funds)
- Current Portion of Compensated Absences
Non-Current Liabilities include:
- Long-Term Portion of Compensated Absences
- Long-Term Liabilities
1.2.2 Exchange versus Non-Exchange
GASB Statement 33 establishes accounting and reporting standards for non-exchange transactions.
References: GASB Statement #33, Accounting and Financial Reporting for Nonexchange Transactions
“Financial Accounting and Reporting Manual for Higher Education Release”, © 2001 National Association of College and University Business Officers, Section 300.
This statement divides non-exchange transactions into four classes:
- Derived tax revenues
- Imposed non-exchange transactions
- Government-mandated non-exchange transactions
- Voluntary non-exchange transactions
The class most frequently found in the University System of Georgia is voluntary non-exchange transactions. GASB Statement 33 defines a non-exchange transaction as one where “a government (including the federal government, as provider) either gives value (benefit) to another party without directly receiving value in exchange or receives value (benefit) from another party [including individuals and other private sector entities] without directly giving value in exchange.”
GASB Statement 33 establishes time requirements and purpose restrictions for non-exchange transactions. Time requirements affect the timing of recognition of non-exchange transactions. Recipients of resources with purpose restrictions should report the assets as restricted until the resources are used for the specified purpose.
The flow chart below provides guidance in determining whether grants and contracts are exchange or non-exchange transactions. More details can be found in the references mentioned above.
1.2.3 Operating versus Non-Operating
Revenues are reported in the Statement of Revenues, Expenses, and Changes in Net Assets and are classified as either operating or non-operating.
References: “Financial Accounting and Reporting Manual for Higher Education Release”, © 2001 National Association of College and University Business Officers, Section 300.
GASB Statement # 33, Accounting and Financial Reporting for Nonexchange Transactions
Operating revenues include:
- Tuition and Fees (Net of Sponsored and Unsponsored Scholarships)
- Federal Appropriations, Grants and Contracts
- Sales and Services of Educational Activities
- Sales and Services of Auxiliary Enterprises
- Sales and Services of Hospitals
- Other Operating Sources
Non-operating revenues are those derived from non-exchange transactions, or those that are not reported as operating activities in the Statement of Cash Flows. Non-operating revenues include:
- State Appropriations
- Investment Income
- Other Non-Operating Revenues