Financial Accounting and Controls

YEAR-END ACCRUAL PROCEDURES

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The goal of the year-end accrual process is to recognize revenues and expenses in the period in which the economic events are incurred,  are incurred, regardless of when the payment is received or paid, to ensure accurate presentation of revenues and expenses. Accrual basis accounting records revenues at the time when services or sales are made rather than when cash is actually received from customers. It records expense at the time when services or goods are received rather than when cash is actually paid to vendors.

To Accrue Revenue

Revenues are recorded throughout the year via invoicing for services and goods provided to third-party (non-UC entity) customers or processing of cash receipts from third-parties. However, there could be a lag between the time a sale of services or goods to a third-party is complete and when the invoicing is done and recorded in the general ledger or the payment from a third party is received and processed. When revenues have been earned but not yet recorded via the standard business processes, an accrual entry is necessary at fiscal year-end to recognize the revenues in the fiscal year during which the business transactions occurred.

Campus departments should accrue revenues only to the following categories of department-generated external revenues (excluding contracts and grants, student fees, gifts, and recharges to campus departments).

Revenue Category Fund Range Revenue Account
Sales & Services of Educational Activities 60000 - 65999 46xxx
Sales & Services of Auxiliary Enterprises 70000 - 74999 47xxx
Other Sources - Service Enterprises 66000 - 66099 480xx
Other Sources - Other 66100 - 69999 481xx

To identify revenues that have been earned but not yet recorded, department staff should review their records of sales to third-parties through June 30 and reconcile such transactions against corresponding invoices or cash receipts recorded in the general ledger. Any completed sales transaction that has not been billed or paid is considered earned but unrecorded revenue, and a revenue accrual journal may need to be processed.

Revenue Accrual Journal instructions

To accrue unrecorded revenues, prepare a reversing BFS financial journal and date it 6/30/201X. Click on “Reversal” in the journal header page and choose Beginning of Next Period or On Date Specified By User and enter 7/1/201X in the Journal Entry Reversal box.  

In the journal line page, enter chartstrings that debit account 12370-Accrued Receivables (Unbilled) and credit the appropriate revenue account (based on the fund category); both the debit and the credit entries should be coded to the same fund and department ID. The accrued revenues will be reported in June and auto-reverse in July. The effect of the reversal in July is to offset the invoicing or cash receipt which will eventually post to BFS, thereby ensuring that the revenue is recorded in June in the prior fiscal year. 

Below are two sample journal entries to accrue unrecorded revenues with Auxiliary Enterprise funds and Educational Activities funds, respectively:

Auxiliary Enterprises funds:
Dr. BU-12370 Accrued Receivables (Unbilled) - fund (70000-74999)-DeptID $XX,XXX
Cr.  BU-47xxx-fund (70000-74999)-DeptID   ($XX,XXX)
Educational Activities funds:
Dr. BU-12370 Accrued Receivables (Unbilled)-fund(60000-65999)-DeptID $XX,XXX
Cr. BU-46xxx-fund (60000-65999)-DeptID ($XX,XXX)

 Departments may include CF1 and/or CF2 in the chartstrings, if preferred.

All accrual journal entries should be supported by documentation showing completion of the sale of services or goods before the end of the fiscal year, and all journals should be appropriately reviewed and approved. Departments are expected to provide supporting documents if the accrual entry is selected for review by the external auditors.

To Accrue Expense

Purchased services or goods from third-parties are recorded as expenses throughout the year via vouchering. However, there could be a lag between the time services or goods are received and when the vendor invoice is received and processed. When expenses have been incurred but not yet recorded via the standard business processes, an accrual entry is necessary at fiscal year-end to recognize the expenses in the fiscal year during which the business transactions occurred.

There are several ways to identify unrecorded expenses:

  1. Analyze the nature of spending in your department. What types of expenses does the unit typically experience during the year and when? Pay particular attention to expenses usually occurring in June of each year. Also, analyze vendor invoices posted to BFS in July with invoice date of 6/30 and prior. Is there a typical timing lag for certain invoices? Make a list of these to review at each year-end.
  2. Review open purchase orders and unapproved vouchers at year-end to see if services were provided or goods were received but were not yet invoiced or posted to the general ledger.
  3. Determine who within your unit/department has purchasing oversight or who approves invoices, and request a list from these individuals of unprocessed invoices or known incurred expenses as part of the year-end close procedures.
  4. Prior to the fiscal close departmental cutoff in July, review July expenses in BAIRS reports and identify any invoices dated 6/30 and prior. Accrue for those as appropriate.

Accrual estimates, for when vendor invoice information is unavailable, should be discussed with Financial Accounting & Controls prior to recording.

Expense Accrual Journal Instructions

To accrue for unrecorded expenses, prepare a reversing BFS financial journal and date it 6/30/201X. Click on “Reversal” in the journal header and choose Beginning of Next Period or On Date Specified By User and enter 7/1/201x in the Journal Entry Reversal box. (Please see the screen shots above under Revenue Accrual Journal Instructions.)

Debit the appropriate expense account and other chartstring fields and credit account 23090-Other Accrued Liabilities. The expense will be recorded in June and auto-reverse in July. The effect of the reversal in July is to offset the voucher which will eventually post to BFS, thereby ensuring the expense is recorded in the prior year. 

Dr. BU-5xxxx-fund-DeptID-Program $XX,XXX
Cr. BU-23090 Other Accrued Liabilities-fund-DeptID ($XX,XXX)

Departments may include CF1 and/or CF2 in the chartstrings, if preferred.

A video on contract and grant award closeout accrual process can be found on the Controller's Office YouTube channel at https://youtu.be/Q0WiyAD1IeE.

Questions about year-end accruals for unrecorded revenues and expenses can be sent to Financial Accounting & Controls at gao@berkeley.edu.