All organizations must choose an accounting
method for financial reporting purposes
What is an accounting method?
 The way financial events are recorded
 Revenue
/ cash received
 Expenses / cash paid
 The way financial position is reported
 Financial statements
There are two basic types of accounting methods:
 Cash
 Income
is recorded when cash/check is received
 Expenses are recorded when the vendor is paid
 Accrual
 Income
is recorded when the sale occurs
 Expenses are recorded when the goods or services
are received (and used)
 Government entities (including universities)
are required to follow GASB standards
What is GASB?
 Government Accounting Standards Board
 GASB establishes accounting and financial
reporting standards for government units
 GASB Statement No. 34 requires the use of the
accrual accounting method
 Since governments are required to follow GASB
standards, CSU is required to use the accrual
accounting method
 Sometimes expenses are purchased in advance
and used over future months
 Service
contracts
 Medical/lab supplies
 Expenses aren't recorded until the money is
actually paid out -- even if the actual expenses
were incurred in previous months
 Revenues are recorded when cash is received
Fiscal year end is 6/30/07 (FY07)
Cas h
Debit
$200 (FY 08)
Credit
Reven u e
Debit
Credit
$200 (FY 08)
1) 4/30/07 Receive order -- test blood sample
2) 5/31/07 Test results completed and invoiced
3) 7/2/07
Customer pays invoice – cash deposit made in
following fiscal year (FY08)
Fiscal year end is 6/30/07 (FY07)
Cas h
Debit
Credit
$50 (FY 08)
Ex p en s e
Debit
Credit
$50 (FY 08)
1) 4/30/07 Place order for lab supplies
2) 5/31/07 Receive supplies and use them
3) 7/2/07
Pay the vendor invoice in following the
following fiscal year (FY08)
 The term accrual refers to any individual entry
recording revenue or expense in the absence
of a cash exchange
 Accruals are recorded on the transaction date
 Transaction date is when a financial event
occurs whether or not cash is exchanged
 Services
are performed (diagnostic testing)
 Product is sold (books)
 Inventory is received
Fiscal year end is 6/30/07 (FY07)
Cas h
Accts Receivable
Debit
Credit
$200 (FY 08)
Debit
$200
Credit
Reven u e
Debit
$200 (FY 08)
Credit
$200
1) 4/30/07 Receive order -- test blood sample
2) 5/31/07 Test results completed and invoiced
3) 7/2/07
Customer pays invoice – cash deposit made in
following fiscal year (FY08)
Fiscal year end is 6/30/07 (FY07)
Cas h
Accts Payable
Debit
Credit
Debit
$50 (FY 08)
$50 (FY 08)
Credit
Ex p en s e
Debit
$50
Credit
$50
1) 4/30/07 Place order for lab supplies
2) 5/31/07 Receive supplies and use them
3) 7/2/07
Pay the vendor invoice in the following fiscal
year (FY08)
 Within this simple difference lies a lot of room
for error — or manipulation.
 Depending on which method is used, financial
reporting may be affected at the financial year
end
Subledger
Revenue
Expense
Subledger
$0
$0
Revenue
Expense
$200
$ 50
General Ledger
Cash
General Ledger
$0
Cash
$ 0
Accts Receivable $200
Accts Payable
$ 50
Subledger
Revenue
Expense
Subledger
$200
$ 50
Revenue
Expense
$0
$0
General Ledger
Cash
General Ledger
$150
Cash
$150
Accts Receivable $ 0
Accts Payable
$ 0
 Prepaid Expenses
 Service
contracts
Paid
once per year
Should be expensed in 12 equal amounts
 Example:
Service
contract $1,800 paid for on 4/1/07
Contract covers 1 year: 4/1/07 – 3/31/08
Fiscal year end is 6/30/07 (FY07)
Cas h
Debit
1) 4/1/07
Ex p en s e
Credit
Debit
$1,800
$1,800
Credit
Pay for 1 year service contract
2) 4/30/07 Use 1 month’s contract expense
3) 5/31/07 Use 1 month’s contract expense
4) 6/30/07 Use 1 month’s contract expense
Fiscal year end is 6/30/07 (FY07)
Cas h
Debit
Prepaid Expenses
Credit
Debit
$1,800
$1,800 $150
$150
$150
$150
$150
$150
$1,350
$1,650
$450
$150
1) 4/1/07
Credit
Ex p en s e
Debit
Pay for 1 year service contract
2) 4/30/07 Record 1 month’s contract expense
3) 5/31/07 Record 1 month’s contract expense
4) 6/30/07 Record 1 month’s contract expense
Credit
Fiscal year end is 6/30/07 (FY07)
Cas h
Debit
Prepaid Expenses
Credit
Debit
$1,800
$1,800 $150
$150
$150
$150
$150
$150
$1,350
$450
1) 4/1/07
Credit
Ex p en s e
Debit
Pay for 1 year service contract
2) 4/30/07 Record 1 month’s contract expense
3) 5/31/07 Record 1 month’s contract expense
4) 6/30/07 Record 1 month’s contract expense
Credit
FY07:
Service Contract
Expense
$1,800
FY07:
Service Contract
Expense
$ 450
FY08:
Service Contract
Expense
$0
FY08:
Service Contract
Expense
$ 1,350
 Service Contracts
 Service
contract expense – FY07
Cash
method = $1,800
Accrual method = $450
 Service
Cash
contract expense – FY08
method = $0
Accrual method = $1,350
 Deposits
 CSU
Contracts with an outside party who
requires a deposit.
½
is often required in advance – may be
refundable
An expense is not booked until the event takes
place
 Deferred Revenue
 Sports/youth
Revenue
camps are paid in advance
isn’t earned until the camp takes place
 Example:
2
week camp costs $500 ($50 per day)
Dates of the camp are 6/25/07 – 7/6/07 (M-F)
Fiscal year end is 6/30/07 (FY07)
Cas h
Debit
Credit
$500
Reven u e
Debit
Credit
$500
$500
1) 5/15/07 Participant signs up for 2 week camp –
deposit $500
2) 6/25/07 Camp begins
3) 7/6/07
Camp Ends
Fiscal year end is 6/30/07 (FY07)
Cas h
Debit
$500
Credit
Deferred Revenue
Reven u e
Debit
Credit
Debit
Credit
$250
$500
$250
$250
$250
1) 5/15/07 Participant signs up for 2 week camp –
deposit $500
2) 6/25/07 Camp begins
3) 6/30/07 Record camp revenue earned in
FY07 (5 days)
FY07:
Camp Revenue
FY08:
Camp Revenue
$500
FY07:
Camp Revenue $250
$0
FY08:
Camp Revenue $250
 Deferred Revenue
 Tuition
paid in June for summer semester ending
in August
Revenue
is earned evenly over the entire
semester
 Football
This
season tickets sold in June
hasn’t been earned until the football season
begins in September
 Valerie Monahan
1-3001
 Heidi Barclay
1-4148
1-6752
1-7099
 Janice Inman
 Laura Streit
 http://busfin.colostate.edu/cs.aspx