Fiscal Close

Accruals and Deferrals

In compliance with Generally Accepted Accounting Principles (GAAP) goods and services must be recorded in the year they were received or performed and income must be recorded in the same year as the expenses that generated the income. The Auxiliary Voucher is used to make these adjustments.

Our ledgers at year end represent part of the University of California’s financial standing at that point in time. If goods or services have been received on or before June 30th and have not been recorded in the ledgers as an expense it represents an unrecorded liability. In the fiscal close certification letter, Deans, Chairs and Business Officers certify that there are no material unrecorded liabilities.

The cost (either from the invoice or an estimate from the purchase order or the vendor) of goods and services equal to or over $10,000 received on or before June 30 of the current year must be recorded in the ledger as an expense, not just as an encumbrance. Goods and services supplied to external customers by June 30 of the current year where the invoice is equal to or greater than $10,000 and were not recorded in the current year ledgers must be accrued. Departments may accrue or defer items under $10,000, but should not accrue or defer anything under $1,000.

Accruals - Accrued Expense

Used when goods or services are received this fiscal year and will be paid for next fiscal year. This is required for items of $10,000 or more, optional for items $1,000 or more, and should not be done for items under $1,000. For contract and grant accounts, accruals should only be done during the June Final fiscal period. For other accounts, an accrual can be completed when you know the goods/services have been received and the invoice will not post to the ledgers by the end of the June Preliminary ledgers.

Examples:

  • You received delivery of a $1,200 computer on June 29th and the invoice won't post until July's fiscal period begins (i.e., the fourth business day in July).
  • Sub contract on contract and grant has rendered service for 4 months of the current fiscal year but invoice will not be sent until several months into the next fiscal year.
  • Consulting work on web page design completed June 15th and the invoice posts August 20th.

Encumbrances vs. Accrued Expense
Encumbrances are used to record obligations for goods and services which will be provided in future fiscal periods. If the goods have been received or the service completed as of June 30th, and the invoice will not be processed until the next fiscal year, the expense must be accrued (if over $10,000) on an Auxiliary Voucher (AVAE) document. If the goods are received or the service provided AFTER June 30th, the expense should be encumbered.

If you have encumbered an expense on a purchasing document and you accrue it for the current fiscal year, this may cause an overdraft in your account; however the correct balance will be restored when the AVAE reverses in the new year.

Capitalized Equipment and Leased Space
Capitalized equipment (at or above $5,000) and space leases will be accrued by Capital Asset Accounting and do not need to be accrued by campus departments. Please make sure the correct receipt date is entered in CAMS before June Prelim closes.

To record an accrued expense using the AVAE:

  1. DEBIT the same Full Accounting Unit (FAU) used when the item was paid.
  2. Offset (CREDIT):
    Account Account Description Object Object Code Description DR/CR
    1154300 Audited Vouchers Payable 0300 Accrued Expense Credit

Remember:

  • There will be an invoice paid/posted to next fiscal year's ledgers for goods/services received in the current fiscal year.
  • Use the Accounting Period "12" for June Preliminary and the Accounting Period "Close" for June Final.
  • Enter a reversal date in the AVAE document (greater or equal to July 20, 20XX).
  • Must include the date the goods/services were received, vendor name, purchase order number or invoice number and an adequate explanation. If an estimate is used, include the calculation method in the explanation.
  • You do not need more than one line for the Accrual account.
  • The reversal of the AVAE will offset the invoice payment for a net effect of $0 in the period it was originally posted. Or, leave the difference between the amount accrued and the invoiced amount if the accrual was an estimate.
  • When accruing for sub-contracts on contract and grant funds always use object code 7300.

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Accruals - Accrued Income

Used when goods or services are provided to a customer in the current fiscal year but are not billed for until the following fiscal year. This is required for items of $10,000 or more, optional for items $1,000 or more, and should not be done for items under $1,000.

Do not accrue for interdepartmental billings (any goods/service charged through an IB document or feed).

Examples:

  • The normal practice in your self-supporting fund is to invoice a month after the services are rendered. This means consulting services provided in June of one fiscal year are invoiced after that year's fiscal close and post in July of the next fiscal year.
  • In July of one fiscal year, you received registration fees for a conference held in June of the prior fiscal year.

To record accrued income using the Auxiliary Voucher (AVAE):

  1. CREDIT the same Full Accounting Unit (FAU) used when the income was received.
  2. Offset (DEBIT):
    Account Account Description Object Object Code Description DR/CR
    1126790 Sundry Receivables 0301 Accrued Income Debit

Remember:

  • Income for one fiscal year must be billed or received (i.e., posted) in the next fiscal year.
  • Use the Accounting Period called Close.
  • Enter a reversal date in the AVAE document (equal to or greater than 7/20/200X).
  • Must include the date the service was performed or the goods delivered, customer name, invoice number and an explanation.
  • You do not need more than one line for the Accrual account.
  • The reversal of the AVAE will offset the income credited for a net effect of $0 in the period it was originally posted.

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Deferrals - Deferred Expense

Used when the expense for goods or services has been paid for in advance (i.e., in the current fiscal year) and the activity won't take place until the following fiscal year. This is required for items of $10,000 or more, optional for items $1,000 or more, and should not be done for items under $1,000.

Examples:

  • Registration fees posted to the ledger in one fiscal year for a conference that will take place in the following fiscal year.
  • Catering services for an event in July of next fiscal year required advance payment this June.
  • Books or software ordered using the Purchasing Card in June are not received until July.

To record deferred expense using the Auxiliary Voucher (AVAE):

  1. CREDIT the same Full Accounting Unit (FAU) used when the expense was paid.
  2. Offset (DEBIT):
    Account Account Description Object Object Code Description DR/CR
    1143000 Deferred Expense 0801 Deferred Expense Debit

Remember:

  • The invoice was posted to one fiscal year for goods/services that were not received until the following fiscal year.
  • Use the Accounting Period called Close.
  • Enter a reversal date in the AVAE document (greater or equal to 7/20/200X).
  • Must include the date the goods/services were received, vendor name, purchase order number or invoice number. Include the date of the intended activity in the Explanation field.
  • You do not need more than one line for the Deferral account.
  • The reversal of the AVAE will result in a debit to expense, appropriately moving recognition of the expense to the correct fiscal year.

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Deferrals - Deferred Income

Used when income is received this fiscal year for services or goods to be provided next fiscal year. This is required for items of $10,000 or more, optional for items $1,000 or more, and should not be done for items under $1,000.

Examples:

  • Tuition received in June for the upcoming fall quarter.
  • Registration fees received in June for a conference held the following month.

To record deferred income using the Auxiliary Voucher (AVAE):

  1. DEBIT the same Full Accounting Unit (FAU) used when the income was received and posted to the ledger.
  2. Offset (CREDIT):
    Account Account Description Object Object Code Description DR/CR
    1180300 Deferred Income Various 0800 Deferred Income Credit

Remember:

  • Income received (CR - Cash Receipt or CCR - Credit Card Receipt document entered) this fiscal year.
  • Use the Accounting Period called Close.
  • Enter a reversal date in the AVAE document (greater or equal to 7/20/200X).
  • Must include the date the income was received, and date(s) of the event in the Explanation field.
  • You do not need more than one line for the Deferral account.
  • The reversal of the AVAE during next fiscal year will result in a credit to income, appropriately moving recognition of the income to next fiscal year.

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