1.3 GAAP and Budgetary Account
1.3.1 GAAP Accounting
University of Georgia institutions are required to conform to the Generally Accepted Accounting Principles (GAAP) basis of accounting. GAAP is the recognized set of accounting principles, standards, and procedures, and is a combination of authoritative standards set by policy boards and other accounting pronouncements. The sources of GAAP in the United States include the Financial Accounting Standards Board (FASB), the Governmental Accounting Standards Board (GASB), and the Accounting Principles Board (APB).
Key elements of GAAP accounting compared to other methods of accounting, including state budgetary accounting, are:
- Full Accrual Basis: income is reported when earned and expenses are reported when incurred.
- Depreciation: the cost of an asset is allocated over the expected useful life of that asset.
1.3.2 Budgetary Accounting in Georgia
The laws of the state of Georgia require that funds appropriated for a specific fiscal year must be “expended or obligated” in that fiscal year, or “lapse” and be returned to the state treasury to be available for future appropriations.
The state code is stated in Code section 45-12-89, dated 12/03/01:
At the end of each fiscal year, the amount of each appropriation provided for in this part, except for the mandatory appropriations required by the Constitution of Georgia, remaining unexpended and not contractually obligated in writing shall lapse and cease to be available; and the state treasury shall not pay any unallotted appropriations and shall make the necessary adjustments in its appropriation accounts to charge off the amount of the lapsed appropriations. All appropriated funds, except for the mandatory appropriations required by the Constitution of Georgia, remaining unexpended and not contractually obligated at the expiration of the General Appropriations Act shall lapse.
The state Audit Department interprets these laws to include internal income available to the institution during that same fiscal year for fund groups subject to lapsing rules.
The fund groups that are audited in accordance with Georgia Budgetary Expense Reporting and having funds subject to lapsing are:
- 10000 Educational and General
- 11xxx Other Organized Activities
- 50000 Unexpended Plant
In addition to the fund groups indicated above, another set of restricted funds are audited within the context of Georgia Budgetary Expense Reporting to report expenditures in relation to approved budget values. However, these fund groups are not subject to having funds lapse. These restricted fund groups are:
- 20000 Restricted Educational and General
- 21xxx Restricted Other Organized Activities
The rules for managing prior year purchase orders issued from Fund 10000, Funds 11xxx, and Fund 50000: (for managing surplus)
Purchase orders issued and encumbered in a previous fiscal year that are paid in the following fiscal year for exactly the encumbered amount have no effect on “surplus”.
Purchase orders issued and encumbered in a previous fiscal year that are paid (as final payment with PO closed) for an amount less than the encumbered amount will contribute the difference between original encumbrance amount and payment amount to “surplus”. No journal entry or other action is required, since the “surplus” amount to be returned to the state treasury is already in the appropriate net asset account due to the previous fiscal year being closed using GAAP/GASB closing rules. GAAP/GASB closing rules do not expense encumbrances.
Purchase orders issued and encumbered in a previous fiscal year that need to be paid for an amount greater than the encumbered amount should have the excess amount charged to the current budget period. The original encumbered amount may be paid against the original budget period. The excess amount should be paid against the current budget period
If a vendor cannot supply the item(s) ordered and you do not desire to reissue the purchase order to a new vendor, the purchase order can simply be cancelled. The entire purchase order amount will become surplus.
Purchase orders issued and encumbered in a previous fiscal year that are cancelled in a subsequent fiscal year may be reissued to a different vendor for similar goods and services in an amount not to exceed the original purchase order amount. The reissued purchase order must reflect the budget period of the original purchase order. If the reissued purchase order is less than the original purchase order amount, the difference will increase “surplus”.