.
CHAPTER 4.3.4
GAAP ADJUSTMENTS AND RECLASSIFICATION ENTRIES
LIABILITIES: UNEARNED REVENUES
1
GAAP POLICIES AND PROCEDURES
Unearned revenue consists primarily of fees collected in advance for summer and fall terms
and continuing education programs.
2
RELEVANT ACCOUNTING LITERATURE
GASB Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions.
GASB Statement No. 34, Basic Financial Statements and Management’s Discussion and
Analysis for State and Local Governments.
Concepts Statement No. 4 Elements of Financial Statements
3
OBJECTIVES OF GAAP ADJUSTMENTS
The objectives of the GAAP adjustments necessary at June 30 related to revenues collected in
advance (unearned revenue) are:
• To defer recognition of revenues collected in the current year for the remaining portion
of summer session tuition and fees relating to the subsequent fiscal year and the upcoming
fall term tuition and fees that will be recognized as revenue in the subsequent fiscal year.
• To defer recognition of resources received prior to applicable eligibility requirements
being met relating to voluntary nonexchange transactions (i.e. grant funds received for
sponsored programs). Note: If all eligibility requirements are met except for time
requirement, use Deferred Inflows of Resources account.
4
GAAP ACCOUNTING T REATMENT AND JOURNAL ENTRIES
4.1 RELATED GAAP ACCOUNT(S)
712105 – Unearned revenue-current
712202 – Unearned revenue – noncurrent
GAAP ACCOUNTING TREATMENT
4.2 UNEARNED REVENUES
On a GAAP basis, revenue must be recognized in the period in which it is earned.
Therefore, when revenue is collected in advance, the portion related to future periods
4.03.4-1
GAAP Manual | GAAP Adjustments and Reclassification Entries – Liabilities: Unearned
Revenues | June 30, 2015
.
must be recorded as unearned revenue, a liability, and recognized as revenue in the period
in which the services are provided. The unearned revenue is considered a liability
because it represents an obligation to perform a service in the future arising from a past
transaction.
Campuses should only record unearned revenue for future services where payments have
been received prior to year-end. For example, if a student pre-registers (i.e. advance
registration) for classes, but does not prepay, then no unearned revenue should be
reported.
Primary examples of unearned revenues are:
• Registration and other student fees collected during the current fiscal year for 1) the
remaining portion of summer session taking place in the following fiscal year, and 2)
enrollment for fall session.
• Housing payments received in advance of occupancy. In this situation, the revenue is
only recognized based on the actual occupancy taking place for the period covered.
If a campus does not record payments received in advance as unearned revenue in its
legal basis accounting records, it is required to make a GAAP adjustment to reflect the
unearned revenue at year end. Such adjustments are timing adjustments and must be
reversed in the following year.
Example
The campus determines that $2,400,000 out of $3,000,000 in collections received during
the current fiscal year were for services that will not be provided until the next fiscal year.
20CY1 – Derived GAAP Entry (period 1-12)
Account
711101
721001
721006
Journal
Description
4.03.4-2
Class
Fund
(CSU
Account Name
(Net Position) Program
Fund)
881 –
Cash and cash equivalents
90
441
Unrestricted
881 –
Student tuition and fees
50
441
Unrestricted
Sales and services of auxiliary 881 –
50
441
enterprises
Unrestricted
To recognize revenue received for tuition and auxiliary enterprise revenue.
Amount
$3,000,000
($2,000,000)
($1,000,000)
GAAP Manual | GAAP Adjustments and Reclassification Entries – Liabilities: Unearned
Revenues | June 30, 2015
.
Manual GAAP Entry (Period 998)
Account
721001
721006
712105
Journal
Description
Class
Amount
Fund
(CSU
Account Name
(Net Position) Program
Fund)
881 –
Student tuition and fees
50
441
$1,800,000
Unrestricted
Sales and services of auxiliary 881 –
50
441
$600,000
enterprises
Unrestricted
881 –
Unearned revenue, current
90
441
($2,400,000)
Unrestricted
To defer revenues collected in the current year that relates to services that will be provided in
the following fiscal year.
20CY2 – Manual GAAP Entry (Period 998)
Account
712105
721001
721006
Journal
Description
Class
Amount
Fund
(CSU
Account Name
(Net Position) Program
Fund)
881 –
Unearned revenue, current
90
441
$2,400,000
Unrestricted
881 –
Student tuition and fees
50
441
($1,800,000)
Unrestricted
Sales and services of auxiliary 881 –
50
441
($600,000)
enterprises
Unrestricted
To recognize revenue related to the portion of unearned revenue recorded in the prior year
that was earned in the current year on a GAAP basis.
Student Tuition and Fees
The difficulty with determining the unearned revenue portion related to student tuition
and fees are the complexity of the summer session programs. For most campus, there
are multiple summer sessions that not only cross fiscal years, but the sessions overlap,
and are charged at different rates. To assist the campuses with this calculation, an
example of unearned fees calculation schedule is provided in Chapter 9, Preparing for
the
Financial
Statements
Audit,
Exhibit 12
Unearned
Revenue
Calculation/Reasonableness Test. This schedule will facilitate all campus regardless of
the registration and collection policy or student system set-up. However, as noted in the
schedule, each campus must:
• Be able to methodically determine each input field and provide supporting
documentation for input data.
• In the absence of information by term or session, the campus may use aggregate data.
• Be able to provide the basis for the methods used in the input fields and the external
auditors must be able to follow the logic and test/assess the reasonableness of the
assumptions used to their satisfaction.
Note that Exhibit 12 may not include all type of fees that are earned over time (e.g.,
instructional related fees, miscellaneous course fees, athletics fees, etc.). Therefore,
4.03.4-3
GAAP Manual | GAAP Adjustments and Reclassification Entries – Liabilities: Unearned
Revenues | June 30, 2015
.
the campus may need to modify Exhibit 12 accordingly to include all applicable types
of fees that must be included in the unearned revenue calculation schedule.
The net unearned revenue totals shown in Exhibit 12 should agree to the unearned
revenue lead sheet in Chapter 9, Exhibit 11 Unearned Revenue Leadsheet. If the
fluctuation between fiscal years is significant on the leadsheet, the campus must be able
to explain the fluctuation and be prepared to provide supporting documentation to the
external auditors, if requested. Therefore, it is important that each campus takes a snap
shot of its student system as of June 30 of each fiscal year.
Sponsored Programs
Another example of unearned revenue may include grant funds received for sponsored
programs prior to all applicable eligibility requirements being met. GASB Statement No.
33, paragraph 19 states that eligibility requirements are conditions established by
enabling legislation or the provider (i.e. sponsor) that are required to be met before a
transaction (other than the provision of cash or other assets in advance) can occur. That
is, until those requirements are met, the provider does not have a liability, the recipient
(i.e. campus) does not have a receivable, and the recognition of expenses or revenues for
resources transmitted in advance should be deferred. Refer to Chapter 4, Grants,
Contracts and Gifts for further discussion on eligibility requirements for Government
Mandated or Voluntary Nonexchange Transactions.
Early Start Program Waiver
AD 2012-01 Early Start Program Waiver Accounting Requirements and Chapter 6.3.3
CSU Fund 441: EE Operations – Early Start Program of the Legal manual, provided
guidance on the legal entries to be made in connection with campus allocations covering
fee waivers related to this program.
Normally, campuses would reverse in GAAP the unearned portion of the amount
receivable from the student as they appear to gross up the accounts. However, for this
program only, campuses should not record the reversal. The CO will eliminate the
following at the Systemwide level: (a) due from/to between the campuses and the CO
(see entry #2), (b) unearned revenues (campus) against prepaid scholarship expenses
(CO) and (c) tuition and fees revenue (campus) and scholarship expenses (CO).
To facilitate the systemwide elimination, each campus will need to confirm the entries
made in their legal books as of June 30 for the entire value of waived fees, including the
mandatory health (health services fee) and University Union fees.
4.03.4-4
GAAP Manual | GAAP Adjustments and Reclassification Entries – Liabilities: Unearned
Revenues | June 30, 2015
.
5
REFERENCE TOOLS
5.1 TABLES OF OBJECT CODE AND CSU FUND DEFINITIONS
http://www.calstate.edu/SFSR/standards_and_rules/2014/Tables-of-Object-Code-andCSU-Fund-Definitions-Updated-10-30-14.xls
4.03.4-5
GAAP Manual | GAAP Adjustments and Reclassification Entries – Liabilities: Unearned
Revenues | June 30, 2015
.
REVISION CONTROL
Document Title:
CHAPTER 4.3.4 – GAAP ADJUSTMENTS AND RECLASSIFICATION ENTRIES
– LIABILITIES: UNEARNED REVENUES
REVISION AND APPROVAL HISTORY
Section(s)
Revised
Summary of Revisions
New in FY14/15
4.03.4-6
Revision
Date
April 2015
GAAP Manual | GAAP Adjustments and Reclassification Entries – Liabilities: Unearned
Revenues | June 30, 2015