Fiscal Year-End Expenditure and Revenue Accruals

SUBJECT: FISCAL YEAR-END EXPENDITURE AND REVENUE ACCRUALS NUMBER:
J.2.
DEPARTMENTS & DISTRICTS AFFECTED: ALL AGENCIES, DEPARTMENTS, AND DISTRICTS GOVERNED BY THE BOARD OF SUPERVISORS
EFFECTIVE: 01/01
 signed
_________________________________ David E. Sundstrom, Auditor-Controller
TABLE OF CONTENTS
1. POLICY
1.1 Purpose 1.2 Authority 1.3 Definitions
2. PROCEDURES
2.1 Available Appropriations 2.2 Journal Voucher Accruals 2.3 Claims Accruals 2.4 Deposit Order Accruals 2.5 Payroll Accruals 2.6 Other Specific Accruals
EXHIBITS
SUBJECT: FISCAL YEAR-END EXPENDITURE AND REVENUE ACCRUALS NUMBER:
J.2.
DEPARTMENTS & DISTRICTS AFFECTED: ALL AGENCIES, DEPARTMENTS, AND DISTRICTS GOVERNED BY THE BOARD OF SUPERVISORS
EFFECTIVE: 01/01
 signed
_________________________________ David E. Sundstrom, Auditor-Controller
1. POLICY
Revenues, expenditures, and expenses of County funds for a given fiscal year must be recorded properly within that fiscal year. Therefore, it is sometimes necessary to accrue some revenues, expenditures, or expense transactions during the year-end closing process. It is the County's policy to accrue only transactions that individually equal or exceed $5,000.
1.1 Purpose
The purpose of this procedure is to establish guidelines for recording accruals at the end of each fiscal year in accordance with Generally Accepted Accounting Principles (GAAP) and federal, state and County program requirements.
1.2 Authority
1.2.1 State of California Government Code Sections 29120-29122 and 30200
  • Sections 29120-29122 prohibit the authorization of obligations that exceed appropriations.
  • Section 30200 authorizes the State Controller to prescribe uniform accounting principles for counties.
1.2.2 State of California Accounting Standards and Procedures for Counties
  • Sections 1.17, 1.18, and 2.27 define accrual and modified accrual bases for accounting and the timing of accrual transactions.
  • Sections 8.13, 8.14, and 8.15 define the types of transactions that are accrued.
  • Sections 8.31 and 8.32 define year-end revenue and expenditure accruals.
1.2.3 Governmental Accounting Standards Board
The Codification of Governmental Accounting and Financial Reporting Standards, Sections 1100, 1600, C50, C60, G60, L10, L20, P20, P70, and P80 prescribe GAAP for governments for revenue, expenditure, and expense accruals, with specific guidelines for transactions such as claims and judgments, compensated absences, grants, landfill closure and postclosure costs, leases, pension costs, property taxes, and proprietary fund accounting.
1.2.4 Board of Supervisors' Resolution No. 82-162
Resolution No. 82-162, dated February 2, 1982, authorizes the Auditor-Controller to prescribe the accounting policies for all offices, departments, and institutions under the control of the Board of Supervisors (Board).
1.3 Definitions
1.3.1 Accrual
A transaction to record revenues or expenditures/expenses in the accounting period to which they are attributable, although the related cash receipts or disbursements may not be recorded until the subsequent accounting period. Due to the magnitude of the amounts transacted by the County, accruals should only be made for transactions that individually equal or exceed $5,000. Because cash transactions cannot be processed after June 30, revenue accruals are usually recorded by accounts receivable entries, while expenditure and expense accruals are usually recorded by liability entries. Accruals can be based on estimates or actual transactions.
1.3.2 Fiscal Year
The annual accounting period for the County is the fiscal year of July 1 through June 30. The month of June is referred to as Period 12. The accounting books for the County for the month of June are held open into July for additional June entries, and this is referred to as Period 13. Period 13 is divided into several scheduled intervals. At each interval, report updates are run (Point Runs). The Auditor-Controller General Ledger Unit schedules the intervals and specifies various types of transactions that are due by specified cutoff dates. Accrual transactions for the fiscal year are recorded after June 30 until the books are closed.
1.3.3 Governmental Funds
General, special revenue, capital projects and debt service funds. These funds use the modified accrual basis of accounting. (See Section 2.2.1.2.)
1.3.4 Proprietary Funds
Enterprise and internal service funds. These funds use the full accrual basis of accounting. (See Section 2.2.1.1.)
1.3.5 Revenue
In governmental funds, revenues are inflows of resources from external parties that do not have to be repaid. Revenues are booked or recognized when they are available and measurable. In proprietary funds, revenues are inflows or other enhancements of assets or settlements of liabilities during an accounting period. Revenues are earned by delivering or producing goods, or by rendering services, and are recognized when they are earned. Because cash cannot be booked after June 30, revenue is accrued using receivable accounts.
1.3.6 Expenditure/Expense
The term "expenditure" applies only to expendable trust and governmental funds. Expenditures are outflows of resources to external parties. Expenditures are booked or recognized when the liability is incurred. The term "expense" applies only to proprietary funds. Expenses are outflows or other consumption of assets or incurrences of liabilities during an accounting period. Expenses are incurred in the process of delivering or producing goods, or of rendering services, and are booked or recognized when they are incurred. Because cash cannot be booked after June 30, expenditures and expenses are accrued using liability accounts.
1.3.7 Encumbrance
An anticipated expenditure in the form of purchase orders, contracts, and other commitments that are chargeable to an appropriation and for which part of the appropriation is reserved. The appropriation remains encumbered until payment is made, or the obligation expires, or cancellation occurs, at which time some or all of the encumbrance is reversed. An encumbrance is not an expenditure or a liability but merely a reserve of appropriations. Expenditures and/or liabilities are recorded when, and if, goods are actually provided or services are actually rendered. For further detail on encumbrances, refer to County Accounting Procedure (CAP) No. A.3., Encumbrances. Journal voucher accruals do not reduce encumbrances and therefore should not be used to record accrual entries for encumbered contract/purchase orders. Therefore, accruals of expenditures or expenses against encumbrances must be processed through the Auditor-Controller Claims Unit in order to reduce the encumbrance.
1.3.8 Appropriations
The authorization by the Board to make expenditures and to incur obligations for specific purposes, as provided for in the Board's adoption of the County Budget, and as changed thereafter by budget transfers and changes to the budget made by the Board.
1.3.9 Journal Voucher
Journal vouchers are the documents used to record year-end accruals. For further detail on journal vouchers, refer to CAP No. J.3., Journal Voucher Preparation and Review.
1.3.10 Budget Transfers
Budget transfers are the documents used to transfer appropriations from one expenditure object or revenue code to another within a fund/agency.
2. PROCEDURES
2.1 Available Appropriations
2.1.1 Appropriations for Expenditures
The budget established for expenditures/expenses (i.e. appropriations) should be sufficient to cover any purchases including accruals at year-end. Departments should continually monitor the sufficiency of their appropriations. Appropriations control is also for the protection of the department/agency, since Government Code Section 29121 states that "...obligations incurred or paid in excess of the unencumbered balance of the amounts authorized in the budget appropriations are not a liability of the county or special district, but the official authorizing the obligation in an amount known by him to be in excess of the unencumbered balance of the appropriation against which it is drawn is liable therefore personally and upon his official bond." At year-end, budget transfers requiring Board action must be submitted to the Board prior to the Board's last meeting in June. Budget transfers not requiring Board approval must be submitted to the Auditor-Controller General Ledger Unit by June 30. Transfers of appropriations from salaries and employee benefits require CEO/Budget Office approval. Budget transfers will be processed after June 30 only for appropriation deficit eliminations and will be coordinated by the Auditor-Controller General Ledger Unit and submitted to the Board. Payment vouchers and/or checks will be held if they overdraw appropriations at the major object (also called "object category") account code level, at the land parcel/organization code level for land purchases, or at the project/organization code level for capital projects. General Ledger staff will request necessary budget transfers to cover deficits. Payments being held will be released when the appropriation deficit is resolved.
2.1.2 Appropriations for Encumbrances
Departments/agencies are responsible for ensuring that appropriations are available to enable contract/purchase orders to be encumbered at the end of the fiscal year. Agenda item transmittals for Board-approved contract encumbrances must be submitted by the deadline for the final meeting in June. If a budget transfer is necessary, it must be delivered to the Auditor-Controller General Ledger Unit by June 30.
2.2 Journal Voucher Accruals
2.2.1 Fund Classification for Accruals
2.2.1.1 Full Accrual Basis Funds
Under the full accrual basis, revenues are recognized when they are earned (the right-to-receive has occurred), and expenses are recognized when they are incurred. Proprietary funds and non-expendable trust funds record transactions on the full accrual basis.
2.2.1.2 Modified Accrual Basis Funds
Under the modified accrual basis, revenues are recognized when they are both measurable and available to finance expenditures of the current period. Expenditures are generally recognized when the related fund liability is incurred. The governmental funds and expendable trust funds record transactions on the modified accrual basis.
2.2.1.3 Cash Basis Funds
June revenues or expenditures are not accrued in cash basis funds. After June 30, changes are recorded in asset and liability accounts that occur in cash basis funds because of accruals recorded in full accrual or modified accrual funds. Pension trust, investment trust, and agency funds, including departmental trust funds, record transactions on a cash basis. Pension trust funds are accrual basis funds, but the financial statements for the Retirement Fund are based on December 31 data. Investment trust and agency funds, including departmental trust funds, are custodial in nature and do not involve measurement of results of operations. Therefore, no accruals in June are necessary. For financial reporting purposes, balances in these funds are adjusted to full or modified accrual basis, if necessary.
2.2.2 Expenditure/Expense Accruals
Accruals should be recorded for incurred expenditures/expenses for which outflows of cash or other assets will not occur until after June 30. To record such accruals, expenditures/expenses are charged, and liabilities are booked. At the beginning of the following fiscal year, one of two types of entries is recorded:
  • For accruals based on estimates, the expenditure/expense and liability entries are reversed. The actual payments are charged to the expenditure/expense account.
  • For accruals based on actual amounts, the accrual entries are not reversed. Cash is transferred and the liability account is reduced.
2.2.3 Revenue Accruals
To record earned but uncollected revenues, an account receivable is booked and revenue accounts are credited. At the beginning of the following fiscal year, one of two types of entries is recorded:
  • For accruals based on estimates, the account receivable and revenue entries are reversed. When the actual revenues are collected, they are credited to the revenue account.
  • For accruals based on actual amounts, the accrual entries are not reversed. The actual receipt of revenue is credited directly to the accounts receivable account.
2.2.4 Journal Voucher Information
The accrual journal voucher should include a description that references the subsequent journal voucher or deposit order that books the accrual reversal or the actual expenditure or receipt of cash. The accrual journal voucher and the subsequent reversing entry (if applicable) must be submitted together to the Auditor-Controller General Ledger Unit..
2.2.5 Cash Transfers
Cash transfers for June business can only be made through noon on the last working day of June. After that time, all of the usual cash entries on journal vouchers must be replaced with receivable/liability entries. (See attached JV examples, entries [2], [3], and [4] on Exhibits I and II.) The receivable/liability entries should not be made until after June 30.
2.2.6 Cash Transfers
Cash transfers for June business can only be made through noon on the last working day of June. After that time, all of the usual cash entries on journal vouchers must be replaced with receivable/liability entries. (See attached JV examples, entries [2], [3], and [4] on Exhibits I and II.) The receivable/liability entries should not be made until after June 30.
2.2.7 Journal Voucher Preparation and Submittal
  • Accrual journal vouchers should include a description that references the subsequent journal voucher or deposit order that books the accrual reversal or the actual expenditure or receipt of cash. The accrual journal voucher and the subsequent reversing entries must be submitted together to the Auditor-Controller General Ledger Unit.
  • Accruals recorded via journal voucher must include sufficient explanations and supporting schedules explaining the accruals.
  • Journal voucher expenditure accruals may not include any transactions for which encumbrances have already been recorded or for any transactions that are valued at less than $5,000.
  • The Auditor-Controller General Ledger Unit must receive all department/agency journal vouchers by noon on each established deadline set by the Auditor-Controller for each fiscal year.
  • Journal Vouchers submitted during July must be boldly identified as either June or July business. This identification should be at the top of the document near the space provided for the journal voucher number.
For further details on journal voucher procedures, refer to CAP No. J.3., Journal Voucher Preparation and Review.
2.3 Claims Accruals
2.3.1 Payment Voucher Accruals
Accounts payable liabilities in excess of $5,000 will be accrued by the Auditor-Controller Claims Unit. To be recorded as payment vouchers for a given fiscal year, the following documents must be received by the deadline that is established each fiscal year by the Claims Unit:
  • Receivers and partial receivers (must show actual date received)
  • Invoices (with approving signatures)
  • Claims for payment
  • Revolving fund (petty cash) replenishment requests
NOTE: All documents must have the proper expenditure coding, vendor name and contract/purchase order number. Documents must be identified as either June or July business.
2.3.2 Other Claims Accruals
Accruals of claims that will be paid by the Auditor-Controller Claims Unit must be processed by the Claims Unit to ensure that encumbrance entries are properly processed. Expenditure accruals are necessary when payments for current year obligations cannot be processed by the Claims Unit's deadline. Accruals may be based on actual charges or on estimates. Documents received within one or two working days of the deadline for payment voucher accruals may be accrued by the Claims Unit through the accrual process.
2.4 Deposit Order Accruals
Up through the cutoff date for Period 13, Point Run #2, July deposit orders must include a detailed description of the cash received and the actual date of the collections. The fiscal year of the collections must be indicated on each deposit order. The word ACCRUED must be written next to items being accrued if a journal voucher is prepared to record accruals for deposit orders. If all items on the deposit order are being accrued, ALL ITEMS ACCRUED must be written. At a minimum, any individual line item on a deposit order of $5,000 or more should be accrued if it meets the criteria for accrual. Correction memos for each fiscal year's invoices and deposit orders must be submitted to the Auditor-Controller Accounts Receivable Unit by the deadline it establishes. This allows time for processing the information through the accounts receivable system.
2.5 Payroll Accruals
Payroll expenditures are accrued for June workdays that are not paid by June 30. In July, accruals are reversed and actual expenditures for the entire pay period are recorded.
2.6 Other Specific Accruals
There are specific rules and procedures for certain revenue, expense, and expenditure accruals. Examples are claims and judgments, incurred but not reported claims, compensated absences, grants, landfill closure and postclosure costs, leases, pension costs, and property taxes. Any questions on these types of accruals should be directed to the manager of the Auditor-Controller General Ledger Unit.
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