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CHAPTER 4.5.2
GAAP ADJUSTMENTS AND RECLASSIFICATION ENTRIES
REVENUES AND EXPENSES: GRANTS, CONTRACTS AND GIFTS
1 GAAP POLICIES AND PROCEDURE
The Grants, Contracts and Gifts line items are as follows:
Grants and Contracts, noncapital
Grants and contracts, non-capital includes all amounts for which eligibility requirements were
met on non-financial aid grants and contracts from federal, state, local or private agencies that
will be used for noncapital purposes. Examples for the CSU include research and development
grants and Head Start program grants.
Financial aid grants, noncapital
This category includes Federal, State, Local, and Nongovernmental financial aid grants that
the CSU have administrative involvement and are nonexchange transactions. It includes all
amounts for which eligibility requirements were met, such as Pell Grant, Cal Grant, Federal
Supplemental Education Opportunity Grant (FSEOG), Work Study, and SMART grant, etc.
Detailed information of grant programs available in the CSU are discussed in the following
chapters of Legal Manual:
 Chapter 30, Financial Aid - Federal
 Chapter 31, Financial Aid - State
 Chapter 32, Financial Aid - Campus/Local/Nongovernmental
Other Federal nonoperating grants, noncapital
This category includes other Federal grants CSU has received that are nonexchange and
nonfinancial aid related. The major program recorded in this line was the one time State Fiscal
Stabilization Fund (SFSF) and federal subsidies which partially reimburse certain Systemwide
Revenue Bond’s interest expenses provided by Build America Bonds program (BABs) under
the American Recovery and Reinvestment Act (ARRA).
Gifts, non-capital
Includes contributions received for non-capital purposes, such as for research or to subsidize a
particular program of the university.
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Grants and Gifts, capital
Grants and gifts, capital includes federal, state, or private grants, contracts, and gifts that are
for the purchase of equipment or the construction of a building or facility. Examples of such
items are grant funds received from the Federal Emergency Management Agency (FEMA) to
reconstruct buildings, or private contributions to purchase computers or buy library books. This
category would also include any donated assets received by the CSU, such as computer
equipment.
Classification between Operating and Nonoperating Revenues
Grants and contracts (noncapital) that are classified as exchange transactions are reported as
operating revenues. Grants, contracts and gifts (capital and noncapital) classified as
nonexchange transactions are reported as nonoperating revenues.
Revenue Recognition Policy – Exchange Transactions
The CSU considers exchange transactions to include charges for services rendered and the
acquisition of goods and services. As such, if the grant or contract requires services to be
rendered by CSU then revenue will be recognized when the services have been rendered.
Revenue Recognition Policy – Nonexchange Transactions
The CSU records grants and gift revenues when ALL applicable time and eligibility
requirements are met. Expenses are recorded as expenditures are incurred. Expendituredriven (also known as “reimbursement-type”) grant revenues are recorded after related
expenditures are incurred, and in amounts equal to the expenditures.
Grants and scholarships (financial aid) are generally “gift aid” programs which do not require
to be repaid. If the grantor (e.g. State, Local or Federal governments) selects the student
recipients of a scholarship or grant, the grant or scholarship should be classified as an agency
transaction, since the campus is only serving as an agent to the grantor. If the campus has the
ability to select the recipient student, or has the ability to redirect the grant or scholarship, the
campus should record the revenue and related expense as part of restricted net position.
Characteristics and Classes of Nonexchange Transactions
In a nonexchange transaction, a government (including the federal government, as a provider)
either gives value (benefit) to another party without directly receiving equal value in exchange
or receives value (benefit) from another party without directly giving equal value in exchange.
There following are two classes of nonexchange transactions that is typically applicable to
CSU:
a. Government-mandated nonexchange transactions
Occur when a government (including the federal government) at one level provides
resources to a government at another level and requires that government to use them
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for a specific purpose or purposes established in the provider’s enabling legislation.
That is, the provider establishes purpose restrictions and also may establish time
requirements.
b. Voluntary nonexchange transactions
Result from legislative or contractual agreements, other than exchanges, entered into
willingly by two or more parties. Examples of voluntary nonexchange transactions
include certain grants, certain entitlements, and donations by nongovernmental
entities, including individuals (private donations). Both parties to a voluntary
nonexchange transaction may be governments (including the federal government, as a
provider), or one party maybe a nongovernmental entity, including an individual.
Frequently, the provider establishes purpose restrictions and eligibility requirements.
In many cases, the provider may require the return of the resources if the purpose
restrictions or eligibility requirements are contravened after recognition of the
transaction. The principal characteristics of voluntary nonexchange transactions are
(1) they are not imposed on the provider or the recipient and (2) fulfillment of
eligibility requirements is essential for a transaction (other than the provision of cash
or other assets in advance) to occur.
Definition of Time Requirements and Purpose Restrictions
Time requirements specify the period or periods when resources are required to be used or
when use may begin. For example, a provider may stipulate that the resources it provides are
to be disbursed during a specific fiscal year or over a specified number of years, or cannot be
disbursed until after a certain date or event has occurred, if ever. Time requirements affect the
timing of recognition of nonexchange transactions.
Purpose restrictions specify the purpose or purposes for which the resources are required to
be used. For example, a provider may specify that its resources are to be expended for road
and street repairs or, in the case of an endowment, that the principal is required to be held in
income-producing investments. In contrast to time requirements, purpose restrictions do not
affect the timing of recognition for any class of nonexchange transactions.
Definition of Reimbursement-Type or Expenditure-Driven Grants
Governments (including the federal government) frequently engage in award programs
commonly referred to as “reimbursement-type” or “expenditure-driven” grant programs. The
provider stipulates that a recipient cannot qualify for resources without first incurring
allowable costs under the provider’s program. That kind of stipulation is not a purpose
restriction as defined in this section. Rather, it is considered an eligibility requirement and
affects the timing of recognition. That is, there is no award—the provider has no liability
and the recipient has no asset (receivable) until the recipient has met the provider’s
requirements by incurring costs in accordance with the provider’s program. Cash and
other assets provided in advance should be reported as advances by providers and as
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unearned revenues by recipients until allowable costs have been incurred and any other
eligibility requirements have been met.
Discussion on Eligibility Requirements
Eligibility requirements are conditions established by enabling legislation or the provider 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 does not have a receivable, and the recognition of expenses or revenues
for resources transmitted in advance should be deferred.
Eligibility requirements for government-mandated and voluntary nonexchange. Transactions
comprise one or more of the following:
a. Required characteristics of recipients.
The recipient (and secondary recipients, if applicable) has the characteristics specified
by the provider. For example, under a certain federal program, recipients are required
to be states and secondary recipients are required to be school districts.
b. Time requirements.
Time requirements specified by enabling legislation or the provider have been met.
The period when the resources are required to be used [sold, disbursed, or consumed]
or when use is first permitted has begun, or the resources are being maintained intact,
as specified by the provider.
c. Reimbursements
The provider offers resources on a reimbursement (“expenditure-driven”) basis and
the recipient has incurred allowable costs under the applicable program.
d. Contingencies.
The provider’s offer of resources is contingent upon a specified action of the recipient
and that action has occurred. For example, the recipient is required to raise a specific
amount of resources from third parties or to dedicate its own resources for a specified
purpose and has complied with those requirements.
Recognition Requirements
Providers should recognize liabilities (or a decrease in assets) and expenses from governmentmandated or voluntary nonexchange transactions, and recipients should recognize receivables
(or a decrease in liabilities) and revenues (net of estimated uncollectible amounts), when all
applicable eligibility requirements, including time requirements, are met. Resources
transmitted before the eligibility requirements are met should be reported as advances by the
provider and as unearned revenues by recipients. If all eligibility requirements are met except
for the time requirement, then the resources transmitted in advance should be reported as
deferred inflows of resources rather than unearned revenues.
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2 RELEVANT ACCOUNTING LITERATURE
GASB Statement No. 24, Accounting and Financial Reporting for Certain Grants and Other
Financial
GASB Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions
GASB Statement No. 65, Items Previously Reported as Assets and Liabilities
3 OBJECTIVES OF GAAP ADJUSTMENTS
The objectives of the GAAP adjustments necessary at June 30 related to grants, contracts and
gifts are:
 To record year-end accrual for services performed as part of eligibility requirements but
have not yet been billed. *
 To record the unearned portion of the grants, contracts and gifts as of June 30 (either as
unearned revenues or deferred inflows of resources). *
 To reclassify grants revenue to grants refundable for those grants reported in an agency
fund. (Refer to Chapter 4, Grants Refundable)
Certain campuses may have elected to book the above adjustment (*) in the legal basis books
(based on the business process followed by the campus). If this is the case, then no GAAP
adjustment is further required.
4
GAAP ACCOUNTING T REATMENT AND JOURNAL ENTRIES
4.1 RELATED GAAP ACCOUNT(S)
Operating Revenues
721002 – Grants and contracts, noncapital: Federal
721003 – Grants and contracts, noncapital: State
721008 – Grants and contracts, noncapital: Local
721004 – Grants and contracts, noncapital: Non-governmental
Nonoperating Revenues
723007 – Federal financial aid grants, noncapital
723008 – State financial aid grants, noncapital
723010 – Local financial aid grants, non-capital
723009 – Nongovernmental and other financial aid grant, noncapital
723011 – Other federal nonoperating grants, noncapital
723002 – Gifts, noncapital
724002 –Grants and gifts, capital
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4.2 REVENUE RECOGNITION PROCESS
The revenue recognition varies based on the type and terms of the grants, contracts and
gifts. To facilitate the evaluation process, please follow the suggested steps below.
Step 1: Read and understand the grant agreement, contract and terms of gifts.
Step 2: Determine whether it is an exchange, nonexchange, or agency transaction.
Step 3: Identify the eligibility requirements based on the terms of the agreement.
Step 4: Monitor the compliance with eligibility requirements to determine the proper
timing for revenue recognition and reporting for resources received in advance as either
unearned or deferred inflows of resources.
Step 5: Activities derived from the legal basis accounting should be adjusted as deemed
necessary in the GAAP ledger.
Year-end Revenue Accrual
Under the accrual basis of accounting, grants, contracts and gifts revenues are recognized
if all time and eligibility requirements were met as of June 30. Below is an example of
GAAP manual adjustment to accrue the revenues.
Account
711103
721002
721003
721004
Journal
Description
Account Name
Fund
(Net Position)
Program
Class
(CSU Fund)
Amount
836-Restricted:
Account receivable, net
90
465
$30,000
Expendable - Other
Grants
and
contracts, 836-Restricted:
50
465
($10,000)
noncapital: Federal
Expendable - Other
Grants
and
contracts, 836-Restricted:
50
465
($5,000)
noncapital: State
Expendable - Other
Grants
and
contracts, 836-Restricted:
50
465
($15,000)
noncapital: Non-governmental Expendable - Other
To accrue grants and contracts revenues when all time and eligibility requirements are
met as of June 30.
Resources Received in Advance
Resources transmitted before the eligibility requirements are met should be reported as
advances by the provider and as unearned revenues (current or noncurrent) by recipients.
If all eligibility requirements are met except for the time requirement, then the resources
transmitted in advance should be reported as deferred inflows of resources rather than
unearned revenues.
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Derived GAAP Entry (Period 1-12)
Account
711101
721002
721004
721003
Journal
Description
Account Name
Cash and cash equivalents
Grants and contracts, noncapital:
Federal
Grants and contracts, noncapital:
Non-governmental
Grants and contracts, noncapital:
State
Fund
(Net Position)
836-Restricted:
Expendable - Other
836-Restricted:
Expendable - Other
836-Restricted:
Expendable - Other
836-Restricted:
Expendable - Other
Program
Class
(CSU
Fund)
Amount
90
465
$30,000
50
465
($10,000)
50
465
($15,000)
50
465
($5,000)
Accounting records derived from legal for recording receipt of funds from grants and
contracts.
GAAP Manual Entry (Period 998)
Account
721002
721004
721003
5
Account Name
Grants and contracts, noncapital:
Federal
Grants and contracts, noncapital:
Non-governmental
Grants and contracts, noncapital:
State
Fund
(Net Position)
836-Restricted:
Expendable - Other
836-Restricted:
Expendable - Other
836-Restricted:
Expendable - Other
836-Restricted:
Expendable - Other
836-Restricted:
Expendable - Other
836-Restricted:
Expendable - Other
Program
Class
(CSU Fund)
Amount
50
465
$10, 000
50
465
$15,000
50
465
$5,000
90
465
($10,000)
90
465
($15,000)
90
465
($5,000)
712105
Unearned revenue-current
712202
Unearned revenue-noncurrent
712304
Deferred inflows-Nonexchange
transactions
Journal
Description
To report resources received in advance as unearned revenues and deferred inflows of
resources.
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
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REVISION CONTROL
Document Title:
CHAPTER 4.5.2 – GAAP ADJUSTMENTS AND RECLASSIFICATION ENTRIES
– REVENUES AND EXPENSES: GRANTS AND CONTRACTS
REVISION AND APPROVAL HISTORY
Section(s)
Revised
General
4.05.2-8
Revision
Date
Summary of Revisions
New documentation in FY2014-15.
April 2015
GAAP Manual | GAAP Adjustments and Reclassification Entries – Revenues And
Expenses: Grants and Contracts | June 30, 2015