COST ACCOUNTING PRINCIPLES AND STANDARDS

I assume that you are less interested i n the technical ramifications
of the subject i t s e l f than you are in what it means for Government
policy--what it means for those who supply the needs of the
Government through contracts.
is part of the broader subject of increased defense spending and the
Federal budget problem as a whole.
You are interested because the subject
Government procurement t h i s year, to speak i n general terms, is
approaching a 60 b i l l i o n dollar business.
the t o t a l Government procurement budget for supplies, materials,
and equipment amounts to more than 57 b i l l i o n dollars.
86 percent of t h i s amount is for national defense.
DOD's procurement t h i s year amounts to over 49 b i l l i o n dollars.
For f i s c a l vear 1970
Approximately
This means that
J - .
/-' An understandable concern of the Congress is whether procurement
.2
/' dollars are being spent e f f i c i e n t l y , whether the lowest cost contractor
gets the contract, and whether the p r o f i t s allowed are reasonable.
c
Only about 11 percent of defense procurement is carried out through
the formally advertised competitive contract, and t h i s is down from
about 14 percent 5 years ago.
about 40 b i l l i o n dollars--is carried out in the form of negotiated,
noncompetitive procurements.
from a single source.
The 89 percent remainder--representing
More than one half of these are
A majority of these negotiated procurements are noncompetitive
and are priced on t h e b a s i s of cost information available to the
Government which, obviously, must be derived from the accounting data
of contractors. Since contractors' cost accounting standards d i f f e r
widely, they are not presently comparable. How, then, can the Government
be assured as to the v a l i d i t y and equity of the costs allowed?
This was the question posed by Vice Admiral H. G. Rickover,
Deputy Commander for Nuclear Propulsion, Naval Ship Systems Command,
who t e s t i f i e d in hearings before the House Banking and Currency
Committee on the extension of the Defense Production Act last year.
H i s testimony that there were no uniform accounting standards for
determining costs largely provided the impetus f o r the l e g i s l a t i o n
directing the General Accounting Office to undertake the study which
is the subject of our discussion t h i s evening.
Many of the examples of the r e s u l t s of t h i s lack of uniformity
used by Admiral Rickover in his testimony were drawn from General
Accounting Office reports. These reports emphasized inconsistencies
-2-
in the applfcation of the Armed Services Procurement Regulation (ASPR)
to the detriment of the Government.
Admiral Rickover has recently summarized his point succinctly
in a letter to me as follows:
"In the absence of true competition, the Government
must rely on contractor cost estimates and cost records
in pricing its contracts. However, under today's procurement
rules, it is virtually impossible to discover what
it costs to manufacture defense equipment and what profit
industry makes in producing it--unless months are spent
reconstructing suppliers ' books.
repeatedly face the Hobson's choice of delaying important
work to analyze thoroughly and negotiate costs or placing
the contract without understanding fully the basis for
the price."
Government officials
PROBLEM OF DIVERSITY
We all know that the diversity of accounting practice in use
today throughout business, finance, and industry is based on the
diversity of products and services sold or provided. This diversftv
is based also on management preferences, historical tradition, and
indeed philosophical disagreement among accountants and financial
managers. These differences in viewpoints are deep-seated. The
professional accounting organizations for many years have attempted
to bring about greater uniformity or consistency in accounting
practices. Their success has been limited.
In fact, no group in industry, or in the accounting profession,
both of whom have a vital fnterest in equitable contractor costing
practices, has rhus far been able, or has seen fit, to develop a
set of specific standards to be followed which can be understood and
-3-
can be relied upon.
to see whether it is feasible to apply uniform standards--or to have
greater uniformity i n standards-in one sector of the economy at
least, that of defense procurement.
It is now the turn of the Federal Government
i- z ,
The new law became effective July 1, 1968. It directed the
/ Comptroller General, in cooperation with the Secretary of Defense
I . r and the Director of the Bureau of the Budget, to "undertake a study
to determine the f e a s i b i l i t y of applying uniform cost accounting
standards to he used in a l l negotiated prime contract and subcontract
defense procurements of $100,000 or more."
This is GAO's charter for the f e a s i b i l i t y study.
In keeping with the provisions of the l a w , we formed a coordinating
conunittee in the Government composed of representatives of GAO, the
Department of Defense, and the Bureau of the Budget.
Next--as the l a w also provided--we began consultations with
representatives of i n d u s t r i a l and professional associations.
advice and counsel has been essential and important to our study
and t h e i r cooperation has been gratifying.
EXAMPLES OF CONTRACTOR DEVIATIONS
Their
One of the f i r s t steps we took was to request the Defense Contract
I Audit Agency (DCAA)--the agency that audits DOD contracts--to provide
us with examples from its audit reports of how contractors have
deviated from t h e i r consistent accounting practices i n defense
v ' ' -
-4-
contract cost proposals or have treated cost incurred inconsistently
with practices i n t h e i r commercial business.
The deviations fromP and inconsistencies in, defense contractors'
accounting methods were shown by DCAA to be i n the following areas:
--allocation of indirect expenses,
--classification of costs between d i r e c t
and indirect, and L
--election of whether costs' should be
capitalized or charged to expense.
The DCAA provided us with more than 50 examples from a u d i t r e p o r t s
issued since June 1968.
cost should be allocated are by f a r the most numerous in the DCAA
portfolio.
differently, but they frequently do so i n a predictable manner. This
problem relates to incurred and proposed costs and can be subdivided
into two parts: direct vs. indirect, and the bases of allocation
of indirect costs.
Cases concerning the question of how a given
Not only do contractors allocate costs of a similar nature
Here are two DCAA examples in the area of incurred costs, showing
d i f f i c u l t i e s encountered by Government procurement officers because
of the lack of uniform standards of accounting for costs.
A contractor incurred rearrangement c o s t s t o t a l i n g $234,000
for expanding its production f a c i l i t i e s , necessitated bp two new
contracts. The contractor, however, charged $132,000 of the costs
to certain contracts which had been completed before the incurrence
of the costs and which had not benefited from the rearrangement.
-5-
In addition to the obvious impropriety of charging costs to contracts
which received no benefit, this procedure was contrary to the contractor's
written policy.
In the second case a contractor charged to overhead as "rental
of building services'' fees of $276,000 for architectural and engineering
services for the construction and alteration of various facilities.
The treatment of the fees was not consistent with that for other
costs of the facilities in question which had been capitalized as
leasehold improvements. The cost was clearly of a capital nature
and should have been capitalized.
In case after case, instances were noted where a contractor
identified various direct costs in submitting proposals for fixed-price
contracts while at the same time including costs of a similar nature
identifiable to other work of the contractor in overhead and allocating
a portion thereof to the proposed contract.
Where a cost is allocated directly to a contract, costs of a
similar nature should be deleted from overall pools when submitting
proposals. In short, a contractor should not ask, or be permitted,
to "have it both ways."
Another problem arises when contractors deviate from their
existing cost-reporting and accumulation practices in presenting
cost proposals.
allocating costs, for purposes of submitting cost proposals, in a manner
different from the way they ultimately record costs for cost performance.
There are many recorded instances of contractors
-6-
. . .. .,
In one case, a contractor normally used one plant wide overhead
rate for its commercial work. However, in submitting a proposal for
a fixed-price contract with the Government, the contractor proposed
a series of overhead rates by different product lines.
indicated that it did not intend to change its accounting system to
record costs in the manner proposed. More importantly, although
it had been proposing overhead on the product-line basis for 3 or 4
years, the contractor had made no attempt to maintain even an informal
record that would reflect the actual costs by product lines.
The contractor
Inconsistencies and deviations such as these take on, as I have
suggested, various forms, but they usually have two characteristics
in common--(l) Government contracts are burdened too frequently with
excessive charges and (2) it is difficult for Government negotiators
to compare costs of contractors that are canable of performing the
work desired.
Obviously, the question of narrowing the areas of difference
and inconsistency continues to be a controversial one. Some hold
that diversity in accounting among independent business entities is
a basic fact OP life.
troversial is that the word "uniform" does not convey a precise
concept and certainly not a C W ~ ~ OunRd erstanding.
GAO'S DEFINITIONS OF ACCOUNTING TERMS
And one of the reasons the subject is con-
-- -I-__L^-
Because accounting terminology is not universallp understood,
it seemed necessary that the term "cost accounting standards" and
-7-
the term "uniform"--which are included in the basic law 1 quoted
earlier-be defined.
the following definitions:
For the purposes of our study, we have adopted
-C-o st Accounting Standards
Cost accounting standards embrace the related principles,
standards, and general rules of procedures and the criteria
for their usage.
"Cost principles" suggest self-evident truths and axioms
which have a degree of universality and permanence and
which underlie, or are fundamental to, the derivation of
cost accounting standards.
"Cost accounting standards" relate to assertions which
guide or point toward accounting procedures or applicable
governing rules. Cost accounting standards are not the
same as standardized or uniform cost accounting which
suggests prescribed procedures from which there is limited
freedom to depart.
Since the legislative history suggested Section XV of ASPR
as a possible satisfactory starting point and Section XV
includes many general rules of procedures, the term "cost
accounting standards" is considered to include ai2 three
concepts; namely, principles, standards, and general rules
of procedure.
Uniform Cost Accounting Standards
Cost accounting standards shall be deemed to be unjiform
when seated with the goal of achieving comparability,
reliability, and consistency of significant cost data
in similar circumstances and with due regard to the
attainment of reasonable fairness to all parties
concerned in such circumstances.
Accordingly, our approach has been to see whether it is possible
to provide greater uniformity and consistency in cost accounting
princfples and standards used in presenting cost proposals and the
-8-
accumulation of costs for Government contracts. We are not considering--
nor did the Congress intend that we consider--uniform cost accountfng
systems. I think we could also point out that we have approached the
problem on the assumption that there may be room for alternative
standards to be applied in accordance with specified criteria.
We have held innumerable conferences with organizations and
individuals concerned from indrlstry, accounting, universities, and
Government. We sought their attitudes and opinions conceaing the
entire problem of adopting "uniform cost accounting standards"
through the use of a questionnaire. Some of you may now be familiar
with the questionnaire. The responses to it from business, industry,
and others are fundamental to our study.
PURPOSE AND DEVELOPMENT OF GAOlQU-E STIONNAIRE
The questionnaire is best understood as a tool for obtaining
reliable, first-hand information necessary in deciding the feasibility
of establishing uniform cost accounting standards. The questions
we asked were designed for the specific objectives of the study.
The questionnaire requested opinions and invited suggestions
from representatives of companies as to propositions or statements
which guide them in their cost accounting practices. Such propositions,
if existing, would be helpful in the development of uniform cost
accounting standards for a l l defense contracts.
The questionnaire had other purposes. It provided a means of
obtaining substantial amounts of factual information regarding cost
accounting practices followed in industry generally.
-9-
A decision made early in the development of the questionnaire
was that it should be designed to be answered by contracting units
rather than by companies.
in some cases divisions of corporations, and in some cases a portion
In some cases these are corporations,
of a large corporative group.
Rather than attempt to get a single questionnaire response
from a contracting company or family of companies, the decision
was made to seek answers from those people most likely to be
working directly with Government contracts. Thus, the questionnaire
would be answered by those best informed on the problem of accounting
for Government contracts--usually the chief accounting officers
of units contracting with the Government.
This method had the further advantage of providing information
on the variety of practices followed by Contracting units and on the
extent of similarity and dissimilarity in their accounting problems.
Responses received bear out the wisdom of this decision.
-D- ISTRIBIJTION OF QUESTIONNAIRE
The basis of distribution of the questionnaire was a Department
of Defense listing of companies awarded negotiated contracts in
fiscal year 1968. All. contractors receiving contract awards of
100 million dollars or more were sent questionnaires. An average
of 12 percent of all contractors receiving awards between $100,000
and $10 million, selected on a sampling basis, were sent queszlonnaires.
Contractors representative of every program in the Department of
Defense list were included.
-10-
We included companies other than Government contractors in the
questionnaire sample because we wanted to obtain some indication of
the extent to which that part of industry having no Government contract
business has developed uniform cost accounting standards. In additfon,
any company which indicated it wished to receive a questionnaire
was sent one. Its response was tabulated along with the others.
To provide confidentiality for all responses and to relieve
those to whom questionnaires were sent of any feeling of Government
pressure, questionnaires were returned when completed to an independent
research staff at the University of Illinois headed by Professor
Robert K. Mautz for processing, interpretation, and a report
thereon, I will have more to say about this in a moment.
Classification of returned questionnaires hy size of company,
type of activity, and experience with Government contracts indicates
that returns are satisfactorily representative.
as follows:
These returns were
Companies with Percent of
Contracts Issued 1968 Mailed Response Returns
Awards over $50 million 96 84 88
Awards $10 million to $50 million 330 266 81
50
1373 824 60
Awards under $10 million -947 -474 -
A great many people obviously gave generously of their time and
thought in responding to the questionnaire. question after question
11-
brought carefully considered, well-expressed views. Any questionnaire
distributed broadly is subject to a fair amount of misinterpretation.
Certain respondents did read into individual questions points
which we had no intention of raising; for example, that the questionnaire
was developing a basis for cost accounting systems rather than
standards. Even in these cases, responses in general were restrained
and constructive.
line position opposing any effort to establish cost accounting
standards. Almost without exception, respondents found one or more
of the proposed cost accounting standards acceptable. Many noted
that certain ones were directly in accord with what they were now
doing.
Only in a few instances did respondents take a ‘nard-
There is of course an understandable fear that standards might
be imposed which could interfere with the develoDment of useful
management information andlor be used to the disadvantage of contractors
in negotiations with the Government.
Answers did indicate that clearly stated standards do.exist
for some areas and that €or others procedural or definitional rules
effectively provide control over cost determination.
reported the existence of procedural manuals which serve the purposes
of cost accounting standards within their companies.
Some companies
The existence of underlying ideas on which practices and defhitions
are based is strongly implied. In some instances, formulation of
these ideas into stated propositions approaches the nature of cost
accounting standards.
-12-
-PROCE SSING RESPONSES TO THE QUESTIONNAIRE
Early in the development of the questionnaire, consideration was
given to the most appropriate processing of questionnaire returns.
Should they be returned to the GAO? Would industry representatives
be willing to respond candidly and completely to a questionnaire
which was to be returned to Government representatives? Would the
results of the questionnaire study be looked upon as unbiased by all
concerned if they were received and interpreted by members of an
organization which might be considered to have some interest in the
establishment of uniform cost accounting standards?
We came to the conclusion that the responses should be
received, tabulated, and interpreted by an independent research
organization to which I referred a moment ago. Bv this method,
respondents could be assured of confidentiality in the handling of ehefr
answers to the several questions. Completed questionnaires were not
made available to members of the General Accounting Office staff or any
other Government representatives, in any wav. This procedure protected
the General Accounting Office from any charge of bias in interpretation
of the returned questionnaires.
The research staff consisted essentially of three members of the
academic staff of two universities--the University of Illinois and the
University of Minnesota.
respondents so that the questfonnaires could he mailed directly to
Professor Mautz at the University of Illinois. Upon receipt, the
Addressed envelopes were provided to
-13-
i . . ". 1 .
outer cover of the questionnaire, which was the only page on which
designation of the respondent was called for, was removed.
use of a code number, the cover was identified with the remainder
of the questionnaire.
separately from the questionnaires and were available only t o the
three senior members of the research s t a f f .
Through
The identifying covers were then f f l e d
Next, the statistical content of the questionnaire responses
was transferred to machine-sensible coding sheets. This was a
clerical process, calling f o r no i n t e r p r e t a t i o n a n d ' i t required only
that due provisions be made f o r adequate supervision and review.
The machine-sensible coding sheets were then converted by electronic
data processing equipment into punched cards from which various
tabulations were prepared.
Once t h i s clerical operation was coninleted, every narrative
response was read by one or another of t h e s e n i o r members of the
research s t a f f . This required c a r e f u l i n t e r p r e t a t i o n of each
response, p a r t i c u l a r l y as they were seeking any clues which might
be found i n the answers indicating that companies had already established
guides which might properly be described as cost accounting
standards. Following review of t h e n a r r a t i v e answers, t h e research
s t a f f members discussed t h e i r conclusions and collaborated i n the
i n t e r p r e t a t i v e report t o GAO.
"ON THE RECORD" COMMEN-TS
- c
L J
, . t
. %
In addition to completing the questionnaire, we invited professional
and i n d u s t r i a l organizations and some Government procurement agencies t o
-14-
comment on various aspects of our study. Among other things, we
solicited their views specifically on the possibility of adopting
Section XV of the Armed Services Procurement Regulation--ASPR--as
a starting point for developing uniforni cost accounting standards.
We wanted their opinions as to the strengths, weaknesses, and
general suitability of Section XV as a starting point. Here are
some excerpts from replies received from four of the organizations.
These excerpts also shed some light on the attitude of these
organizations toward the more basic question of whether or not uniform
cost accounting standards are feasible for negotiated defense contracts.
The American Institute of Certified Public Accountants provided 3 fus
with a series of thoughtful statements as to the suitability of
Section XV as a starting point. These, developed bv its Committee
on National Defense, are too long to be qgoted here. The central
points of its statement seemed to us to be the following:
--Section XV is basically integrated with generallv
accepted accounting principles and cost accounting
used by industry.
--Section XV contains a good statement of allocability
concepts which have general applicability; it also
contaJns some allocation rules. In practice, there
are wide differences among contractors in how these
concepts and rules are applied.
--Various rules are established in Section XV in certain
selected cost areas where generally accepted accounting
principles may need to be narrowed or reviewed, such as
pension costs, depreciation, materi.al costs, intercompany
pricing, independent R&D, and bidding and proposal costs.
-15-
--Section XV contains pricing considerations which have
nothing to do with cost accounting. * * * (These) pricing
considerations need to be clearly differentiated from
cost accounting considerations.
--Section XV seems to offer a number of s u i t a b l e c o s t accounting
concepts for use in developing uniform cost accounting
standards. Finding swh good starting points and proceeding
with care, research and testing offer the best chance of
success in developing a good set of cost accounting standards.
--If the cost accounting elements of Section XV were to become
the core of uniform cost accounting standards, it is
possible t h a t s p e c i f i c guidelines could be developed which
would provide guidance hevond the general a l l o c a b i l i t y
c r i t e r i a and beyond generally accepted accounting principles.
PGAA (Federal Government Accountants Association j likewise provided ?
us with a statement much too long and i n t r i c a t e to be quoted here.
It was prepared by a special five-member AD HOC Committee. Its points
s a l i e n t to our review t h i s evening appeared to be these two, which I
am quoting:
--"This conmfttee has concluded, on the basis of its review
and collective experience, that a more definitive set of
uniform cost accounting standards than now contained i n the
FPR (Federal Procurement Regulation) or ASPR (Armed Services
' Procurement Regulation) is required to assure that proposals
received from responding sources are consistent accounting-
, wise.
--"The committee believes uniform cost accounting standards
for defense contracts are feasible and should be d e f i n i t i v e l y
formulated to provide the Governmerir with greater assurance
that cost data received from responding bidders and contractors
are comparable and r e f l e c t r e a l operating differences
rather than the use of different accounting principles and
practices. I'
AGCA (The Associated General Contractors of AmerL-2) said that ? !i-.''.!
statements on cost accounting principles should be limited to general
-16-
. .-
A , <. ,
policy that provides guidelines for the determination of those costs
which constitute d i r e c t and indirect charges and overhead or general
and administrative expense. AGCA said that "the purpose of Section XV
does not f u l f i l l t h i s application for the construction industry."
-SI A (Strategic Industries-Association) stated:
"Our position is that Section XV of the ASPR is not
a basis for the adoption of uniform cost accounting standards;
nor can we suggest, within the context of the immediate q1-iestion,
improvements in that section."
.-CODSIA (Council of Defen--s e a n d a a c e Indastrv Associations)
asked a task group representing eight industry associations and
member companies f o r t h e i r views concerning the use of Section XV as a
basis for development of uniform cost accounting standards. CODFIA
told us that some task group members and t h e i r companies f e l t that
certain paragraphs of ASPR XV already go as f a r as possible i n establishing
standards llheterogeneo1Js" for defense industrv. Others,
CODSIA said, ''have a strong conviction'' that ASPR XV cannot be used
as a basic document for establishment of standards, as that term was
defined and i l l u s t r a t e d by GAO.
MAP1 (Machinery and Allied-Products I n s t i t u t e ) replied that it
opposes the concept of uniform cost accounting standards and believes
t h a t l e g i s l a t i o n on the point is nefeher necessary nor desirable.
~FEI- _(F-in-an-c-ia-l -E xecutives- I n- .s-- t i t u t e ) , on the other hand, replied
i n part as follows:
"We believe t h a t c e r t a i n portions of Section XV when
separated from the rest of the Section and other Regulations
-17-
could, and i n our opinion should, be incorporated into
any body of cost accounting standards that might be
developed i f the (GAO) f e a s i b i l i t y study indicated
that t h i s would be desirable. * * *
"With f u l l industrv participation, it should be
possible to develop a set of cost accounting standards
that could be generally applied and used by industry."
In another part of its statement, FEI went on to sag that the
two definitions i n ASPR f o r d i r e c t costs and indirect costs could
be used as a s t a r t i n g point for the development of a set of cost
standards.
-C--H ALLENGE OF WRITIN_G-- ----S-- TANDARDS
Whether our study leads us to the conclusion that uniform cost
accounting standards are feasible, it is an understatement to say
tha.t it would be d i f f i c u l t eo write standards that would be acceptable
to evervone.
Any standards to be fully effeccive m u s t be workable and must
be generally acceptable.
Acceptability would depend chiefly on two factors.
One factor would be the a b i l i t v of those who write the standards
to communicate clearly the i n t e r e s t and purpose of those standards.
The other, factor would be the necessity to develop srandards
general enough to be applied i n diverse i n d u s t r i a l a c t i v i t i e s hiit
specific enough to achieve a greater degree of uniformity.
The most d i f f i c u l t problem is to write standards that would
achieve t h i s balance.
-18-
Standards must be stated i n terms general enough so that cont
r a c t o r s w i l l not find themselves i n "straightjackets ."
tractors must accept some d i s c i p l i n e i n t h e i r choice of cost
accounting practices.
Bot con-
L e t me give you an example.
A dollar of d i r e c t labor should mean the same thing to a l l
p a r t i e s required t o use the data.
that the dollar of d i r e c t labor reported includes only the actual
t i m e the laborer worked or t h a t it includes t h e a c t u a l t i n e worked
nata users should know e i t h e r
plus a l l normal nonproductive time, such as coffee breaks ana
downtime because of mechanical f a i l u r e s of machines. Data users
should a l s o know whether only t h e l a b o r e r ' s basic hourly wage is
included or whether t h e b a s i c hourly wage plus comnanv-paid frinRe
benefits are included.
Cost data has l i t t l e value to anyone if evervone uses d i f f e r e n t
ground rules i n its preparation.
We cannot claim that our f e a s i b i l i t y study thus f a r has given
us a precise "fix" as to how detailed or how general standards should
be written. Rut we have brought together a vast amount of information
and expert testimony bearing OR the problem.
-PROB-LEM OF DEPRECIATION
Before closing, I would l i k e to mention once more t h f s matter
of acceptability. General aceptance of a standard would c e r t a i n l y
e s t a b l i s h f e a s i b i l i t y of adaprion. But, as mentioned earlier, the
-19-
different and built-in objectives of the participating parties to
negotiated Government contracts create divergent views as to the
acceptability of a standard. We are, therefore, faced with a
fundamental question:
prerequisite?
Is general acceptance necessarily a
The Government is motivated to make the tax dollar buy as much
defense material as it reasonably can. Therefore, Government
o f f i c i a l s , in looking at depreciation as a d i s t r i b a t i o n of the
cost of a fixed asset over its economic tlseful l i f e , may, in a
given case, view the expiration of such useful l i f e as occurring
evenly over each year of the a s s e t ' s life--straight-line debreciation.
A contractor, on the other hand, being motivated to avoiding
as much r i s k as possible and to maintaining as strong a financial
position as he can, may favor accelerated depreciation as the most
appropriate of accounting alternatives.
why a contractor might p r e f e r t h e use of an accelerated method
of depreciation: Speaking broadly, it generates a greater immediate
cash flow as a r e s u l t of reduced income tax payments.
There is another reason
It is clear therefore why financial managers are motivated to
seek the highest depreciation r a t e s allowable under current income
tax regulations. It is also clear why the same financial managers
would seek high depreciation r a t e s , when product price negotiations
are based upon estimated costs or where estimated costs are a t
least a predominant factor. This is management's prerogative.
-20-
On the other hand, it is more than the prerogative--it is the
lawful duty--of Government contract negotiation officials to determine
that cost data offered in support of negotiated contracts reflect
actual costs. Where prices are based upon or are influenced by
production costs--that is, where cost data becomes a "standard"
for pricing--the cost data should represent true costs as accurately
as possible.
Under conditions where there are opposing economic interests,
it seems apparent that acceptability cannot be an essential criterion
for judging feasibility.
CONCLUSION
All that we have been discussing boils down, essentially, to
this: Government procurement officers should know what an article
costs with some assurance that the costs have been determined according
to uniform criteria, consistently applied.

ACCOUNTING systems

ACCOUNTING
I; Princi
Introduction
The rimary p
expenditure data in agency accounts.
The. accounting for expenditures on this basis is not a new requirement since it is an integral part of an accounting system maintained on the accrual basis, and accounting systems on this basis have been a Government-wide requirement for niany years. However, in December 1067 President Johnson ap roved the recommendation of his Commission on Budget Concepts that $ edeid espeiiclitares should be stat& on an accrual rather than on a cash basis. This action placed %ubstaiitinlly increased emphasis on the need for Federal agency accounting systems to be able to produce reIiable accrued expenditure data promptly. On February 22,1969, President Xson reaffirmed the objective of placing the Federal budget and financial reports on the accruai basis recommended by the Budget Commission (see appendix D) . This action further highlights the need for d l Federal agencies to introduce the necessary changes in their accounting systems so as to be able to produce prompt and reliable accrued expenditure data. se of this booklet is to provide, in a convenient ref- . erence Po m, a bnTe &s um15 of acceptable methods of recording accrued iv I .
1. Recommendation
on Budget-C
‘ CoImnm Disescioenin obna B 1u9d6g6eFtx t
Expenditures should b
when the Government in
words, on an accrrial rathe
The C!oinmission fur
From the standpoint.of
probably represent the bc
the pomt in time at m’
immediate or eventual pa
struction put in place _-
After discussing 5.
budget summary stat
disbursements-the C:
are that ‘best measure’
which has the largest
sector.”
For reference purpo
October 10,1967, whic
as appendix A of this ‘
Implementing instr
by the Bureau of the I
Accounting Office and
on April 26, 1968. Thi
On June 20,1968, tl
No. 18 of its Fiscal RI
and B thereof with
included as appendis
:,
Basic Requiremen1
Basic laws irnd our
for Federal agencies
.. ...
ACCOUNTINFGOR ACCRUEEDX PENDITURES
PART I
1 - . :*- Principles and Requirements
; ._’ -- 1- ?.. -. Recommendation of President’s Commission
.. on Budget Concepts
• ~f !
.. ~i,
In December 1067 the President approved the recommendation of his . 81
Commission on Budget Concepts that :
Expenditures should be reflected in the budget and Federal financial reporting when the Government incurs liabilities to pay for goods and services-in other .. . . words, on an aecruul rather .than a cash basis.
. - The Coinmission further stated:
.. From the standpoint. of detexmining fiscal policy, expenditures on an accrual basis
probablp.represeiit the best measure of the economic impact of the budget. This is
the point in time at which the Government actually incurs a liability requiring
immediate or eventual payment, including constructive delivery in the case of construction
put in place and work performed by contractors on specific Order. After discussing which measures are most a propriate for overall budget summary statements-obligations, accrue2 expenditures, costs or disbursements-the Commission concluded that “Accrued expenditures are that ‘best measure’ since the accrual is the point of h a 1 commitment which has the largest and most direct economic impact on the private For reference purposes, chapter 4 from the Commission’s report, dated October 10, 1967, which included this recommendation, is included in full as appendix A of this booklet.
Implementing instructions for this recommendation were developed . ’ 3-! Z by the Bureau of the Budget, the Treasury De artment, and the General . on April 26, 1968. This bulletin is included herewith ILS appendix B. On June 20,1968, the Treasury Department issued Transmittal Letter KO. 18 of its Fiscal Re uirements Manual. The letter and attachments A and B thereof with ilI u strations of thO required reporting forms-a re included as appendix C.
Basic Requirement for Accrual Accounting
Basic laws and our prescribed principles and standards of accounting
for Federal agencies have long called for the maintenance of accounts
1
. sector.” ‘
• Accounting Office and issued ‘as Bureau of the s udget Bulletin ?To. 68-10
$.
’.
s- ,
F- -- - -
_. . _.. . . -
-.
011 the accrual bask. IIowever, soinc refiiiemeirt in the application of thcse priiicipleq and sttixidads is necessary to accommodate, primarily at the npproprintion level, the reportin-, in accorcluncc with the Commission’s reconiincnt~at.ionso,f revcnues~md’espendtiu res in terms of accruals rather than in terms of rcceilks and disbursements.
The principal refinements are that accrued .revenue and expenditure data he obtained oil n monthly basis aid that in the case of contractors performing work to the Government’s specifications, accrued espenditures be recognized in Federal accounts and reports on the basis of constructive receipt of goods and services, without awaiting physical delivery to or acceptance by the Government.
The Comptroller General’s prescribed accounting principles and standards have been revised to provide specifically that in accordance with the recommendations of the President’s Commission on Bud et Concepts, the measure revenues md expenditures of the FederaL Government to be reported monthly to the Bureau of the Budget and the Treasury Department. accrual basis of accounting must. be employed by Fe f era1 agencies to T l ~ sper inciples ind standards were also amended to provide that :
Under mine contracts, 81rCh as wlrertr a contractor builds facilities or naanrclucticres goods of equipmcnt to the Govemment’8 epeciflcatiolw. the liability to pay for work is incurred as it is performed by the contractors rather than when deliveries are mnde. Under these circumstances, materials or serviws being acquired shnll be recorded as accrued crpenditures on the basis of reported performance of work. rather than us i?&dces are received or as disbursements are made, and a related liability shall be recognized.
In view of the President’s approval of the Commission’s recommendntion on accrued revenue and expenditure accounting and reporting, all Federal agency accounting systems must be revised as necessary to produce the required data. Such revisions me a requisite to approval of those systems by the Comptroller General.
Relationship of Accrued Expenditures to Costs
Accrued expenditure reports to the Bureau of the Budget and the Treasiiry Department will usually be made at the appropriation level. For internal management purposes, the accounts should produce cost information on a project or activity basis.
Accrued expenditures measure the value of goods and services received. In contract, the term “cost” refers to the financial measure of resources consumd in accomplishing a specified purpose such as performing a service, carrying out an activity, or completing a unit of work or a specific project. The recognition of both expenditures and costs requires the accrud basis of accounting.
The adoption of the accrual basis for reporting the Government’s espenditures in no way lessens the importance of good cost data for internal agency management use. The production and reporting of significant cost information are essential ingredients of effective financial management.
Such information is needed for use in keeping costs within limits
established by lam,.reguIation, or agency management policies prescribed
2
.-
-
i
for achieving ‘maximu
comparisons of per:-.
of management control
The us8 of cost infc
placss positive empha
turn, thii emphasis re:
the planning of oper..
not exceeding budgeta
on value received.
Accounting for
Some gcnerd guide?
Prepayments -
Preps ments and i
the prepayments and :
payments should be r
should be reduced, in
and reported.
others s I? odd aot’b
Progrea p ~ y m ~ t s
The measure of acc
Government’s specific:
eriod, not the Rmou
rogress payments
are reported.
The accrued expen1
such performance ; i.e
plus estimated fee or
Accrried liabiIities
In addition to reco
rcndcred and goods r
documents, it is necet
closure, to record the I
received and perform
or payment made at
be estimated on the t- ~
Methods of deter- ~
Some of the ways i
i . b e determined are as f
?i I. Unpaid invoic
. . be used when a
t ‘
- - .. . _. . . __~ .~... ., _ _ ~ . . . . .... .. . .. . . .~ . . . .
for achieving maximum efficiency and economy; in making meaningful compsrisons of performance; in planning; and in the general exercise of management control.
The use of cost information in achievin the efficient use of resources turn, this emphasis results in giving greater prominence to cost aspects in the planning of operations as opposed to lacing exclusive emphasis on not exceeding budgetary authorizations wL !it a resulting Iack of emphasis on value received. places positive emphasis on the receipt o f value for resoll+ces used. In Accounting for Accrued Expenditures Some p e r 8 1 guidelines on accounting for accrued expenditurcs follow.
Prepay menu
.. .
ents and advances to emplo ees, contractors, grantees, and the prepayments and advances occurs. In the meantime, advances and prepayments should be recorded and reported as assets. Such asset accounts should be reduced, in Thole or in part, as the expenditures are incurred and reported. others prepr 0 odd not be reported as expenKitures until performance under Progress paymenta and Ccholdbacka” The measure of accrued expenditures under contracts for work to the Go yernment’s specifications is the amount of work performed during the eriod, not the amount of any progress payments which may l e made. brogress payments are encompassed in the expenditure figires which are reported.
The accrued expenditure to be recorded ~rould be the total ralrie of such performance; i.e., progress payment, plus any amounts licld back, plus estimated fee or profit applicable to the work performed.
Accrued liabilities
In addition to recording as sccounts payable tha linbility for services rcndcrecl and goods received as evidenced by vendors’ iiwoi.ccs or other documents, it is necessary for management purposes, iucludiiig full disclosure, to record the assets, expenses, and liabilities for goods and services received and performance rendered for which no bills have been received or payment made at the end of the month. Such accrued liabilities may be estmated on the basis of available information and previous experience.
Methods of determining accrued expenditures
be determined are as follows :
-
Some of the ways in which amounts to be accrued as expenditures may
1. Unpaid invoices from vendors covering shipments received should
3
be used when available.
i
- - .~- .. . . . .- .~ . . ..~. .. . .. . . . . . . ~ . - ... - - - .. .- . .. .
4 Receiving reports showing quantities received and whether a given shipment is complete or pnrtial are useful in determining the amount of the accrual when the invoice has not been received.
3. Payroll, trave1, and other vouchers prepared but not yet paid can be used.
4. Personal services for the days between the close of the latest payroll period and the end of the month can be calculated based on past experience plus other factors such as overtime.
5. Where an obligation is recorded covering the expenditure which accrued mithin an accounting period, the obligation figure may be thO best estimate of the amount of the expenditure incurred.
6. In the case of fised-price contracts which extend beyond 1 month and cover goods manufactured to the Government’s specifications, a statement from the contractor at the end of each month estimatin the percentage of completion, inchding work performed by
7. For cost-type contracts, monthly reports from the contractors showing the unbilled ortion of performance to monthend, including work performe% by subcontractors, could be used to accrue the expenditure.
8. Similar monthl performance reports from grantees could be used
9. If reports from contractors or ntees are not available or are not other operating officials who are .familiar wit progress under the contract or grarit.
10. Zndependent of or in combination with the foregoing mays, sampling and other statistical methods, which are susceptible to verification as to their validity, could be used, especially where amounts are relatively small and the number of transactions is large.
I t is for the individual agency to use those methods which it believes mill
best satisfy not only its accounting and operating management requirements
but also the requirements of the Bureau of the Budget, the Treasury
Department, and the General Accounting Office.
su % contractors, could be used to estimate the accrned expenditure.
to accrue expen & * tures for grants.
feasible, estimates could be or tsi-ned from iro ject managers or
Illustrative I
i
$1
This part illustrate
liquidntm them, and
basis. Un er an auton:
entries wouid be perfc
niing. For example, ..
is given to the computt
entry takes plitce.
Appropriation, A*
For the purpose of i
that an appropriation
ment of $36,000 has 1
entries for the fore&
f >
(a) To record approprint
Funds with Treasms
Unapportioned
(.b) To record approval 01
Unapportioned Bp.
Unallotted 5::
(e) To record allotment c
Unallotted Apportfo
Unobligated N
Obligation Incurr
When an obligation
Unobligated Allotments-.
Unliquidated Obligat
Accrued Expendit
The next entry mi1
ings, where applicabl
made at the time the e:
1 The same amount ns “1 ~
4
PART II
. .
:. -
..
Illustrative Procedures and Transactions-
Method A
This part illustrates an acceptable method for recoiding obligations, liquidatin them, and recording the resulting expenditures on an accrual basis Un tfe r an automatic data processing system, some of the following entries would be erformed automatically as n result of proper pro is given to the computer, a simultaneous reversal of the original o ligating entry takes place.
Appropriation, Apportionment, and Allotment
ming. For exampP e , when the trmsactioii which records the exg e nT rtu“re
For the purpose of the expenditure illustrations to follow, it is assumed
that an appropriation of $36,125 has been made, of which an apportionment
of $36,000 has-been approved, and $10,000 lias been allotted. The
1
, _
• . . entries for the foregoing transactions are :
(a) To record appropriation received:
(.b) To record approval of apportionment:
(e) To record allotment of funds:
Funds with Treasury_ -___-_----_-------------_---~-$-3-6-,~ E 5
Unapportioned Appropriations _________________________________ $36,125 Unapportioned Appropriations ____________________________ 36, OOO UnaIlotted Apportianments _-__--______-__~ _____I_--_-_____-_-- 36, OOO Unallotted Apportionments _______________________________ 10, OOO Unobligated Allotments_ -_-____-____________----_l0-,-m-_ -_-----
Obligation Incurred
\i Accrued Expenditure
$ The next ent will record espenditures incurred. Simultaneous postin@, where ap&xble, should be made to cost accounts. If payment is made at thetime the expenditures accrue, the Funds with Trensury account : j$ .-L—
• The same amount ns “undelivered orders” In appendlx C. *-5 ., . . .. .. I .. . . .. .. .- .
may be credited when the espenditurea arc recprtled. Othcrwi.se, the Accounts’PayabIe account {or an Accrued Liability ?ccount) IS credited. Each month the accounts will reflect the espciidi tures mourred as riicasii reti by the receipt of goods and services.
An asset or expense accouirt is charged for the amount of goods
< 6
.L..? voucher of $3OO,OOO lcss the amount already accrued of $lOO,OOO (now covered by the voucher) plus the $50,000 of unbilled work performed. The accrual and liquidating entries are :
>. b
In Xovember the third voucher is paid less the 20 percent withholding.
The entry is :
14
Accounts Payable _-____-________-___-__I_______________ ---- $240,000 Funds with Treasury -- -_----- -_---_- - -__-_I L $240,000 Later in November the facility is accepted, the final voucher for $50,000 is received and paid, together with the 20 percent withheld on the three previous vouchers. The entries are :
15
(a) Accrued Liabilities ________-_____-_-_ _-___-_--_---$--S -O_,O-O_O - Accrued Linbllftfes (Holdbacks) ____ ___-_---- __-___--1-7-0-, OOO Fuuds with Treasury .................... -------- -------- --- $2ZO,W
(b) Plant nnd Fncllities ..................................... 9 0 0 , ~ Work in Process-Contractors,--- _______ ----- __-__ __--__-----S-OO ,O OO The foregoing ontries also illustrate the manner in which certain costtype coiitrncts coiild be handled.
Accounting for Progress Papente and Partial Deliveries For Defense and other a encies use the Armed Services Prqcurpnent an acceptable method of accruing performance.
On January 1 a contract is signed for 1,000 units of an inventory item at price of $100 per unit. The contract provides for pro ress payments of 80 percent of costs incurred (exchdin profits). The A Q PR table conmated profit of 8 percent of costs) in liquidatlng the progress payments. Assuming an allotment has been made, the entry to record the contract obligation is :
16
Unobligated dllotmente_ -__---_-------- ----_ _---------- - $100, OOO ‘ Unliquidated Oblfgations_ __-___-_----_ -_ ___------------- - __----- $100, OOO Since obli rrtions are li uidated when expenditures .are accrued, the orders.”
The contractor reports costs incurred through January 15 (excluding profits) of $lO,?OO and r uests a progress pepant. ?e accrued expendl-ReguIntion (ASPR), t he P.o lloming 11 fu stration is given as incficatme of verts 80 percent of cost to 74.1 percent o f sell+g price (bnsed on an estiaccount U nff quidated Ob P igations k synonymous w~th “undelivered ture and portion of the5 o l igation to be liquidated) IS $10,000 pIua 8 percent t 6 ereof for estimated profit.
-
f
To make payment, accrue performance to date, nnd record the liquidation of this portion of tlie obligation, the entries are:
(a) Work in Process-Pafd
17
(Unliquidated Progress Payments) (SOc/o),- ----------- - $S,OOO
Wurk in Proces+Unpaid ____________I__________________ 2,600
(b) Unliquidated Obligations ________I___________p_______ 10,MO (e) Unobligated Allotments _______________--________________I 10,800 Funds with Treasury_ __________-____-_________$_&_O_W_ _________
2,8oo
Unobligated Allotments ____________________-----1-0-,-8-0-0- ----_--
. Expended Appropriations (accrual basis) ____________-1_0,_ so_0 __-_
On January 25 the contractor delivers 50 acceptable units and is nom
entitled to tlh portion of the lioldback wliich was accrued. Tlze entries
Holdbacks (Including proflt) ___-- _-___-_ _ __________-__--____
..
are:
(a) Inventory _________________________________--I__-- $5, OOO
Work In Proces4-Pnid
(Unliquidated Pr0gre.m Payments) (74.1%) ------_--_---__ $3, i%
Work fn Process-Unpaid (25.9%) _________I-_________---_ 1 . 3 5
(b) IIoldbncks ___________________1,295
E’unds mlth Treasury_ _________-______-_----- ---__- ---5-2 95 If B contractor makes delivery too late in the month for payment of the portion of the amount withheld, the foregoing entry would still be made except that Accounts Payable would be crcdited in (b) instead of Funds with Treasury. When paid the follo~i~migon th, Accounts Payable would be debited and Funds with Trensury creditcd.
It is estimated by tlie contractor or the agellcy that $12,000 additional performnnce (including profit) occurred from January 16 through January 31. ‘This amount should incIudc the arnonnt of performance reflected 011 any unpaid progress payment requests. The entries to record the nccriial and liq,iil-iation are:
19
(n) Work %;I Pr0ces.s-Unpaid, -_____-__________-_$_l2-*O_O-O- ----_--
(b) Unliquidated Obligations ________I____-__________--------- 12, OOO ia Accrued Llnbilities_ _______________-_______________________$-1_2 ,000 Expended Appropriations _________________-__I______ - ___----_ E, OOO The foregoing entries nie reversed on February 1.
The contractor reports $40,000 of additioiial costs through February 15 nlid requests R progress payment. To make payment, ~ccrueth is performmce, and to record the liquidation of this portion of the obligation, the entries are:
20
(a) Work In ProcesePnid
(Unliquidated Progress Pnpments) (80%) -----_----_--- S.32, OOO Work in PmcesbUnpeid_ _________________1_1,_20_0 -_-_--
Funds with Tkasury_ __________________-___$_32_,0_00_ ____________
Holdbacks (including proat) _-_______-________ _________11_,2_0_0 _-__
(11) Linliqddnted Obligations ________________________________ 43.200
Unobligated Allotments- _________________________________4_3,_2 00
(c) Unobligated Allotments ____-_____--_________ -_-__-----I- 43,200 ICxpencled .\pItroprintionu ______________________________________ 43,200
10
(a) Inventory _-----
Work in Pro~
(Unliqnidat!
Work in Proc
(b) Holdbacks _-----
Funds with T
. It is estimated
February 16 throu_
liquidation am :
(a) WorkinProcess-
(b) UnliAqcucirduaetedd LiC : .
Espended :-
The foregoing. ‘
The contraitor -
requests a progress I
*
(a) Work fn Process-
( Unliquidated
Work in Process-
Funds with !I
Holdbacks ---
(b) Unliqnidnted C”’
Unobligated 2
(c) Unobligated Allot.
Expended AP
On March 25 the
record receipt and 2:
(a) Inventory __----- Work in Proc (Unliquidat Work in Proc
(b) Doldbacks ------ Funds with T
By March 31 th,
the contract with r
inent. To make pay1
the remainder of th;
(a) Work in Process-
(Unliquidated I
Work in Process-
Funds with ‘I
HoIdbacks _--
(b) Unliquidated Obi
c Unoblfgated I
(c) Unoblignted Allot
. Espended Ap
_ _ - ....._._... .... .. . ._ . . .
On February 25 the contractor delivers 350 acceptabble units- The mtries
to record receipt and payment am>
21
. - 11
i I
t
I
i
I .I
I
t
I ! i
f
1
On April 10, the h a 1 100 units are received and accepted. The entries to record receipt and payment are:
26
(a) Inventory _________________________________________-__ $lO,$O Work in Process-Unpaid (25.9%) _________-__-______---------
2,690
Work in Process-Paid
(Unliquidated Progress Payments) (74.1yo)- _______-__-_$7_,4-1_0 _ 2,590 Funds with Treasury _______I__________________-_-_-_______- 2,590 The contractor has received $26 less than the contract price of $100,000-This resulted from holdbacks beiiig accumulated on the basis of the true percentage of 25.926 percent whemas payments of the holdbacks were made at only 25.9 percent based upon the ASPR conversion table. The following additional entry could be made to bring the accounts into bdance and pay the contractor the additional $26 :
Work in Process-Paid_,,-l,,,-,,,,,,,,-,-,,,-,,,,___-_--_ $26 Holiibacks -__-~_____--___u_____--------------------- 28 Work in Process-Unpaid (Unliquidated Progress Payments) _____________________________ Funds with Treasury ______________________-___--___--_-__-_--
(b) HoIdbacks ___---_ ____________-____________-_--_-_-_-
2.7
$2
Accounting for Grants
Nany recipients of Federal grants receive advances under a letter-ofcredit procedure (Treasury Circular KO. 1075, Revised) in order that withdrawals from the Treasury are made no sooner than necessary. The letter-of-credit method applies only when the grant agreement extends over a period of 1 year or more. In the following illustration, transactions art3 shown for only the first few months of the period covered by the grant.
Let us assume that a grant agreement is signed for $600,000 covering a %year period. The grantee submits 8 performance report (actual or estimated) at the end of each month (or performance is estimated each month by the grantor). The agreement is signed September 20 and work under the p n t commences in October. The grantee submits its first voucher under the letter-of-credit authorization on October 1 for $15,000.’ Performance in October vas determined to be $12,000.
The entry in September to record the grant agreement is:
Unobligated Allotment_ ____-______________---$-6-0-0-, O-O_O -------
Unliquidated Obli~ations-----~--~-----~--- __----- --_ -_---___S_SO_O,- 0 00 On October 1 the entry to record payment of the voucher under the 2s letter of credit is :
Advances Outstanding_ _____-_ _-_- _____-_-_________-----_- 29 $15, OOO Ehnds with Treasury_ _________________________$_16_, O_OO_ __________---
On October 31 the entries to record accrual of the performance (actual or estimated) and t.he liquiclation of the &ligation are:
12
(a) Expenaes-Grants
Advances C-
(a) Unllqntaated c-
Unobligated A1
(c) Unobligated Allotm
Expended App
On November 3 tj
credit authorization
mined to be $18,000.
3 . The entry to ream
Advances Outstanding-
Funds with Treasu
. The entries to ec
and the liquidation I
(a) Expenses-krants
Advances Out
(b) Unliquidated CX”
Unobligated Ai
(c) Unobligated Allotnl
Erpended A,,
On December 5 a
of $25,000 is submi
be $29,000.
The entry to recorc’
-
-- ,-_
Advances Outstanding-
Funds with Treasu
The accrual and lic
(a) Expense~-Grants
Advances C. .*.
(b) Unliquidated CUnobligated
A1
(a) Unobligated Allotm
Expended Apg
Preparation of
Treasury Departn
(appendix C) contai
reports on accrued e:
After posting entr
balance mould result
Funds with Trea
Aeseta --_______
Accounts Payable.
3010 UnappOrtioned Ar
A _ c <-
.-
- . _, -...
. ....
3020 Unallotted Apportionments ........................................ $2!,
. 3030 Unobligated AIiotments _---_-_________________________I________ 0.300
3040- Unliquidated Obligations .......................................... 1.80
3050 ICxpiided Appropriations (aCCr113f basis) _________________________ 2.700
.TOO0 Expenses-: ________i__ _________-____ ____________________ q2,tioO _____
TotaL ............................................... 38,825 38,S25
It will be noted that all the accounts in the trial balance except the first three are identical in amount to the illustrative trial balance contained in attachment h to Treasury Department Transmittal Letter No. 18, snd correspondihg account numbers have been assigned to such accounts. The balances of accounts 3010,3020, and 3030 are combined for entry on line 304; unobligated budget authority, of Treasury Form No. BA- ‘ 6i27. The balance of account 3040 goes on line 305 of the form, and the balance of account 3050 goes on h e 501, The “AnaIysis of Account for Undelivered Orders” on the Treasury reporting form based on the above trial balance would be as follows:
1. Balance Jrily 1L---,----,,l----,I----------------I----------_----- 0 ~ .. 2. Adjustments (entry 3)-,-,-------,------------------------------- -SOQ
3. Obligations incurred (entry 2) __-____-___________________I________ 4, so0
4. Balance per line 305-----,----~,---_--_---,----------------_----- -1.800
5. Expenditures (accrual basis) _-_________________-________I__ - ------ -- 2,700 In order .to facilitate the preparation of Tremry Forms No. BA-6727 and‘ BA-6728 prescribed by Transmittal Letter No. 18, an agency should have separate general ledger accounts:
1. Which segregate accounts receivable from the public as distinct from those from US. Governmeht agencies.
2. Which segregate advances and prepayments on grants from those on contracts. ill1 other advances should be segregated between those relating to the public and those relating to other Government agencies.
3. For. accounts payable (and for funded accrued liabilities) relating to *he public as distinct from those relating to Government agencies.
4. For unearned revenue relating to the public as distinct from revenue relating to Government agencies.
--
---- . -
*
*
. .
After an agency’s trial balance is prepared for a given appropriation or fund account, the balances of those accounts, grouped where necessary, which ap ly to the Treasu forms ma be transcribed to the appropriate The Treasury instructions are preliminary in nature. Changes in the instructions and the forms may be expected as a result of experience gained lines of tR e form and tota’9 e d to ‘veri5 that they are in balance. . during the test period.
Illustrative
Another acceptabli
basis involves char61
tiires account divided
1. Operating E:
2. Capital Exper
mould be char
Use of this Accrur
pended Appro riati
Method A of Fart ?
Under this metho(
ditional charge and
char_ge+tu rns into :-
tionill liabilit turns
and thO actua 9 liabili
cease.
Unfunded expense
other agencies me c:
to the Accrued Expel1
This method has ‘a
dual entries for trar
wider Method -4 thr
to acconnt for oblig:
gations, and Expenc
counts are needed fr
Unliquidated Obliga
it is unnecemry to r\.
whereas under Neth
of the obligation accc
priations) even tho
expenditure entry.
Under this nmthoc
accounts, one of wli
accumulated. In the 1.
It is merged into tl
the cash balnnce.
Accrued Expendi
The Accrued Exp,
for advances and pr,
14
PART III
Illustrative Procedures and Transactions-
Method B
Another acce table method of recording expenditures on th0 accrual
1. Operating Expenditures, to which expenses mould be charged.
2. Capital Expenditures, to which outlays for nonexpendable property Use of this Accrued Expenditures accoimt makes unnecessarg the Expended Appro riatiom (on an accrual basis) account illustrated in TJnder this method an obligation is considered to represent both a conditional charge and liability. When performance occurs, the conditional charge turns mto an actual charge (accrued expenditure) and the conditional liabilit turns into an actual liability. &4t the time the s enditure b k s involves c % arging all funded expenhtum to an Accrued Expenditnres account divided into two subaccounts:
mould be charged,
Nethod A of f: art 11.
and the actua9 l iability are recognized, the conditional charge an3 liability cease.
Unfunded expenses such as depreciation and cost of space provided by other ag-iicies are charged to an Unfunded Charges account instead of to the Accrued Expenditures account.
This method has as one of its objectives the elhilintion of many of the
dtinl entries for transactions that characterize Hethod A. For example,
under Method A three budgeta accounts are used in the general ledger
to account, for obligations : Un3o l igated Allotments, Unliquidated Obligntions,
and Expended Appropriations. Under Method B only two accounts
are needed for obligation accounting: Conditiontll Charges and
Unliquidated Obligations. Even these two accounts are not needed when
it is unnecessary to record an obligation prior to recording the expenditure,
whereas under Method A the obligation entry must be recorded in two
of the obligation accounts (Unobligated Allotments and Ex ended Appropriations)
even though it is made simultaneously wit R the accrued
r
-
• expenditure entry.
Under this method, the Funds with Treasury account is split into subaccumulated.
In the balance sheet, the Disbursements account is not shown. It is merged into the Funds with Treasury account in order to reflect ,4p . .- the cash balance.
• .7?-.- . Accrued &penditures Account.
3. The Accniecl Expenditures account includes both disbursements, exce t .,. -. . . for advances niicl prepayments (which are classified as assets), and IiabiEp
- - 15
accounts, one of which is Disbursements, where all disbursements are !&----
i’
~.
i -
-
ties (items which have accrued but are un aid). Tl$s amount is subdivided into Operating Expenditures and Capita?Expen&tures.
When expenditures are made for ca ita1 items, the ked asset (nonexpendabIe
property) &counts are a1so c%arged, with an o€€set to an account
such as Acquisitions Capitalized. The Capital Expenditures and Acquisitions
Capitalized accounts would ordinarily offset each other. Neither
account would be shown in the balance sheet. If assets are constructed,
subsidiary accounts such as Construction in Pro ess wodd be maintained
Simultaneous with charges to Operating Expendit= would be charges ‘ in a subsidiary ledger to cost canters, to operating expense avounts, or to
current working asset accounts. The balances of these wor asset acand Work in Process.
For the purpose of the illustrations to follow, it is assumed that an
appropriation of $36425 has been made, of which an ap rtionment of
the foregoing transactions are :
to accumulab such costs. Ca ita1 Expentlitures Y ess Acquisitions Capitalbed
would control such subsi B iary accounts.
counts would be closed into such general ledger aemunts a%s w ntories-
$36,000 has been approved, and $lO,OOO has been allotted. K e entries for
L
(a) To record apgroprlation received :
(b) To record approval of apportionment :
(c) To record allotment of fun- :
Fonds with Treasury I-___-__--____-_____-__________- $30,125 Unapportioned Approprfatroak_ _____________-___-_-_ _$3_6,- I_25_ ---
Unappottioned Appropriations- _--__ -__-__ - -_-- ___-_3 6, OOO Umllotted Appodonmente _________________-___I____________ -- 36, Unallotted Apportionments _______________--__10_,-00_0_ __--___-mtlnent _----_---_--_---_1-_ - ____----- 2 ------------- 10,ooo &at all obli tions be recorded, particularly when For exam le, if there is a separate allotment for persona wrmc88 op 8 ?t is not likely that monthly obligations for suc payrolls ~ o rde d t eater control. For most of the following transnctions it is assumed Instead of debiting the Allotment m.ount when obligations are reoorded, the Conditional Charges account is debited. Conditional Charges in the trial balance are the excess of obligations made over obligatiuns liquidnted, as reffe cted in columns 6 and 7 of the allotment ledger (see &g. 1). Accrued expenditures in the trial balance equals the total of column ti of the allotment ledger, The excess of the Allotment account over the totsf. of the Coaditional Charges and Accrued Expenditures accounts is the unobligated balance and agrees with column 9 of the allotment ledger. The balance of the conditional Charges account plus the Accrued Expenditures account gives total obligations.
Journal entries are shown below for the general ledger accounts bvolvtd in the following illustrations. Actually, these entries would be made m only at the end of the posting or accounting periods from re@Stefi OF other records of original entry. The first three ilhstrations are a b shown as they tvould be entered in the allotment ledgsr (see fig. 1). It is not necessa the obligation and t T e erpenditum%h occur during the re$&% period. uarterIy ta sis, it will be baaed on the &hated %a yrolls for thatr nd’ itnh aatn oyb r ig ation entries have been made.
- :._.. _
.. . -
.-.. -
.. .I
. .
.. -
. .._. -. ..
-. .- .,. .,. ..-. . . .
. . . .I :--
I, ,
Figure 1
AWUn’MENT-EXPENDITURE LEDGER
CUHRENTITRANBACTIONB
DATB EXPLANATION CONDITIOKAL
Ciunavs
(Ouuannoss
xticun~u)
2 I J ---
1 4 b 6 8 9
7-1-69
7-16-69
8-20-69
Allotment I nane. #I ____
Obligatione mudo,,, Tram. 12 ____
Performance_ -_-__”-ra m. #3_ ___
10, 000
5, 200
5, 500
,
I ‘
. IIL
If the accounting system is computerized, entries coiild be made individually
or in batches. Liquidating and certain other entries would not
have to be made as tlie com uter could be programmed to record such
penditure is given to the computer, a simultniieons rerersal of t-lie original
obligating entry takes place.
transactions nutomaticnlly. & eir tlie trnascrctioii, which records the ex-
When an obligation is incurred, the following entry occurs :
2
Unliquidated Obligations_ ______________________________________$_4 , When performance occurs, the Accrued Expenditures account is charged for the amount ($2,700) of performance (goods delivered, services rendered, construction performed, grants- earned, loans made, etc.) which . occurred durin the month. At the same time, the ortion of the obligation Conditional Charges----- -___--_ _______ L. ______ _______ $4,800 ($3,000) relate i to the expenditure is liquidated. T P le entries are: .
3
(a] Accrued Expenditures ____________________________________ $2,700
(b) Unliquidated Obligations- _______3_,000_ ,______________________ Accounts Payable~_____,,_,,_,,-__,_-___,,-,,,-,-~__~________ $2,700 Conditional Charges_ _________3_, OOO ________,___,__,_,-__________, When payment is made, which frequently is in a Inter month, the entry is :
4
Amunte Payable_ _________$_2,700_ ______,_____________________-_-Disbursements _______,____$_2,700_ __________,______-,________,__----__-If the voucher is paid in a different amount than the lrccrued expenditure, the Accrued Expenditures account should be ad’usted accordingly with Sometimes a voucher is received and paid in the same month in which the performance occurs. Such transactions do not have to be run through the Accounts Payable account. Assuming the voucher to be in the same amount as the obligation, the entries to record payment of the rrccnted expenditure and liquidation of the obligation are :
5
(a) Accrued Expendltures_ ________$1, OO_o ___,_______-----------_-Disbursements _,__________________-_---- - ---- -- ------- -----
(b) Unliqyidated Obligations_ _______1, OOO_ ___,___,___--_-,---
Conditional Charges ___________________________-_--____,--__,- - an asset and not as an accrued expenditure. &e entry is :
Aavancea Outstanding_ ____________-__-_--_--_--_--_- _--$-1-.-60-0-an offsetting change in the unobligated balance Q 4 the allotment.
$ 1 . ~
1. OOO
If an agency makes an advance or a prepa ment, it should be recorded 6 Disbursementa _______,___,_$1._600 ___,_,______________-----------------
When performance occurs (say $1,000), the accrual and liquidating entries ar0 :
(a) Accrued Expenditures_ ____,_&---_L -___,__I_ -__--_--- -
(b) Unliquidated Obligations __,__________________,,,_,,,-- ---
1
$l,ooO
Advances Outstanding_ _______________-__-- -_-_$1_,_0-0 0 _,,___,_,__
1, OfXl
Conditionai Charges_ _________L_oo0_ _____,_______________________,-
18
If the voucher is 1-1
amount or covers m;&.
serves as documentatio
Accounting for C
If an agenc enter
facility to the 2 overnr
payments with a 20
applicable portion -
accrual as we11 as any 1
Let us as sum^ a c
facility at a fixed pric
by the end of each mL
rofit) will be made
$uringAugust. -
Tlie entry to record
-
*.
.. ..
Conditional Charges-,,,
Unliquidated Obligat
At the end of Au
$200,000 and it is estii
formed to the end of t
liquidate the obligatio
(e) Accrued Espenditui
.&counts Payabl
Accrued Liabilit
Accrued Liabilit
(b) Unliquidated Obliga
Conditional Cha
Durin Se tember
withliol#mg.l;’he en tr
Accounts Payable-,,,.
Disbursemen& ____-
By tlie end of St,L
it is estimated that $-
$50,000 of unbilled 5.
now covered by the vc
$250,000 voucher p:-.
$.50,000 accrued in Aug
are :
* .
(a) Accrued Expenditur
Accounts Payabl
Accrued Liabilii
f Accrued Liabiliti
(b) Unliquidated Obliga
Conditional Ch
• . . . -- . . . .. __ . . .. __i. _. _. .
facility toae Government’s specifications, providing for monthly pro ess payments with a 20 ercent withholding, the amount withheld an f the . .applicable portion o the profit should be included-in the expenditure accrual as well as any unbilled performance.
Let us assume a contract is signed July 15 for the construction of a by the end of each month based upon which ~yepsa~F t s ( including rofit) will be made with the 20 percent wit o ding. onstruction starts &wing AugusL The entry to record the obligation when the contmt is signed is :
..*
‘7;. _ . P
.:-3
?.:- . :I: : .:
7.. . + .
>..:. .—
• 3- - -
.- -:- facility at a fixed price of $900,000. The contractor is to Nbmit his vouchee
-. ..
. \,. ..
8
• . -_ Conditional Charges _________I______-__________I____ -- . %IWH).O00
, --
- - - r Untiqufdated Obligations _______________________I____________ $900, OOO At the end of August a voucher (including profit) is received for $200,000 and it is estimated that $50,000 of additional work has been performed to the end of the month. The entries to accrue the expenditure and liquidate the obligation are:
9
(a) Accrued E x p e n d i t u r e s ~ ~ , , , ~ , ~ ~ , - ~ , , - , , - , , ,$,2~5~0,0~o~0 ~ ~ ~ _ ~ _ ~ _ _ _ ~ ~ ~ ~ ~
Accounts Payable ______________I_____________I_____________ $160, OOO Accrued Liabilities_ _______________-_________5_0_, OO_O_ __________--
Accrued Liabilities (Holdbacks) ............................. 40, OOO
(b) Unliquidated Obligations __________________________I___ 250, OOO Conditional Charges I__________________________---____--_--_- 250,000 Durin September the voucher of $200,000 is paid less the 20 percent withhol ing. The entry is :
Accounts Payable _______________-__________I______-- $160, OOO 10 8;
Disbursements _____----------I---------- ------------------ $160, OOO By the end of September the second voucher is received for $350,000 and it is estimated that $100,000 additional work has been performed. Since $50,000 of unbilled work was accrued last month, which performance is now covered by the voucher, the accrued ex enditure for the month is, the $350,000 voucher plus the unbilled work o P $100,000 less the amount of $50,000 accrued in August. The entries to record the accrual and liquidation 11 are:
(a) Accrued Espenditures_ _________-___-__--_- -__~_0_0 ,_O_O_O __ Accounts Payable ______________I_______________I__________ $SO: OOO Accrued Liabilities_ _______________-__- -_------------ -- 50,OOO Accrued Liabilities (Holdbacks)_ ________-_--_--_ __-_-_-- --- 70, OOO
400,OOO
Conditional Charges ____________________________ + _-___ 400,000
19
(b) Unliquidated Obligations ____I____________________ ----
L i
During October the second voucher is paid less 20 percent withholding.
12
The entry is :
Accounts Payable_ ___________________--2- -------------- ---_ $9S, OOO Disbursements __________________________________________-__-__$_~_ , O O O The third voucher is received by the end of October for $300,000. The work is completed but $50,000 remains unbilled. Since $100,000 of unbilled iwrk has already been accrued, the A4ccrued Liability account mill have tr, be reduced by $50,000. The accrued expenditure for October is the vo:tcher of $300,000 Iess tho amount already accrued of $100,000 (now covered by the voucher) plus the $50,000 of unbilled work performed.
Tha accrual and liquidation entries are:
13
(a) Accrued Expenditures I___________________-__--__-_-_ $250, OOO Accrued Liabilities _________________________________ 50,
(b) Unliquidated Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . m, OOO Accounts Payable_ _____________________-__-$_24_0,_ a0-0- -_-_---__---
Accrued Liabilities (Holdbacks) ____________________r_________ S0,OOO Conditional Charges ____________________c___________________-- 250,000 I:i Norember the third voucher & paid less the 20 percent withholding.
The entry is :
Accounts Payable_ ______--__--___-__---__-_-_$-2_40~, O_OO_ -_-------
Disbursements ____________________-___-___-_$2-4_0,0-0_0 ---_____-__---
.Later in November the facility is accepted, the final voucher for $50,000 is received and paid, toget.her with the 20 percent withheld on the three previous vouchers. The entries are :
15
(a) Accrued Liabilities_ -_____-_________-______$_50_, _OO_O __________ Accriied Liabilities (Eloldbacks) __-_____________17_0, -O_OO_. ______
(b) Plant and Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 900,OOO
14
Disbursements _________-___________-___--__$2_2_0,_00_0 ___--___-___-_ Acquisitions Capitalized_ ___________________-__9_00-,_00-0_ _-____-___ The foregoing entries a1so illustrate the manner in which certain costtype contracts could be handled.
Accounting for Progress Payments and Partial Deliveries For Oefense and other agencies usiy the Armed Services Procurement Regulation (ASPR), the following 11i)ustration is given as indicative of an acceptable method of accruing performance.
. On January 1 a contmct is signed for 1,000 units of nn inventory item at a pic6 of $100 per unit. The contract provides for prowess payments of 80 percent of costs incurred (excluding profits). The ASPR table converts 80 percent of cost to 74.1 percent of selling rice (based on an esti-Assuming an allotment has been made, the entry to record the contract obligation is :
Conditional Charges ________________-_____I_______________ $100, OOO mated profit of 8 percent of costs) in liquidating t? e lp rogress payment. 16.
Unllqiiidated Oblfgaffons_ ___________-_--______--_$_10_0,_0_00_ ____-__--
20
Since obligd.ions :
account Unliquidate
orders.”
The contractor rep
profits) of $10,000 nr
diture (and portion 1
percent estimated pr
To make payment,
dation of this portion
(a) Accmed ExPenditL
Disbursements
Holdbacks (inc.
(Accrued Expcndi
would be appropriate
the portion of the ac
ment mould be-posted
by the holdbacks.)
(b) Unliquidated Oblfg;
On January 25 th
sititled to this porti
record receipt and pa;
Condltlonal c’
Holdbacks (25.9%) ----
Disbursements -----
(In the subsidiary
of $5,000 would be tr
tions, $3,705 (74.1 pe:
payments, and $I&
the amount of the F:l
If a contractor =-
the portion of the a;
made except that P-.
bursements. When p
be debited and Disbui
It is estimated byperformance
(not IT
January 31. This :
ilected on any unpai
the accrual and liquid
(a) Aamed lbpenditu:
Accrued Liablli
(a) Unlfqnldated Oblig Conditional C1 The foregoing entri
Since obligntions are liquidated when expenditures are accrued, the account- Unliquidated Obligutipns is synonymous with “undelivered orders” The contractor reports costs incurred though January 15 (exducling profits) of $10,000 and requests n progress payment. The accrued expenditure (and portion of tlie obligation to be liquidated) is $10,000 plus 8 percent estimated profit.
To make payment, accrue performance to date, and to record the liquidationof this portion of the obligation, the entries are :
17
(a) Arnrued Expenditures _______ - - --- ----__-_ $10,800 , Eoldbacka (iuclndlng protit) _--____-_- -_-__-- - _ ___ -- -_----- ---- 2,800 (Accrued Expcnditures is 8 control mxount. In a subsidiary ledger mould be appropriate expense, cost, and cIearing accounts. In thisexample, the portion of the accrued expenditure represented by the progress payment would be posted to an account separate from the portion represented by the holdbacks.)
(b) Unliquidated Obligations ___-__ -_-_- __ __-__---_-_--_ _G_O_, 8-00 . Conditional Charges-_ ____ -_ -----__--_-__-I-. .--_- --_I---___- $10,800 On January 25 the contractor delivers 50 acceptable units and is now e6titld to this portion of the holdback which was nccrued. The entry to record receipt and payment is :
18
Holdback8 (Za.S%)--- --_-_- -_ ___- -------_-------- __---- -- $1,296 Dlsbarsementa ........................... -_ ---_-____-______$1_.2_95_ -_--
(In the subsidiary ledger, at lenst by monthend, the 50 units at a price of $5,OOO would be transferred to an issues account such as Stores Operations, $3,705 (74.1 percent) from the account showing amount of progress payments, and $1,295 (25.9 percent) from the account represented by the amount of the holdback)
If a contractor makes delivery too late in the month for payment of the portion of the amount withheld, the foregoing entry would still be made except that Amunts Payable would be credited instead of Disbursements. When paid the following month, Accounts Payable mould be debited and Disbursements credited.
It is estimated by tho contractor or the agency that $12,000 additional performance (not covered by the progress payment) occurred through January 31. This amount should include the amount of performance reffected on any unpaid progress payment requests. The entries to record the accrual and liquidation are:
19
(a) Accrued l!hpendlturea ___________________________________ $12, OOo
(b) Unliquidated ObligatfOW----------- __--_- - ---______1_2,_00_0 Disbursements (80%) ___________________________- -_ ---_- --_-- $8, OOO A m e d Liabilities --_-_---------__----_-_-_-_----___----_-_-.- $12,000 Conditional Charges------------------------------------------ 12,000 The foregoing entries are reversed on February 1.
21
T
The cont2actor reports $40,000 of additional costs through February 15 and requests a pro res payment. To make payment, accsue this perforniance, and to reco.r 8t.h e liquidation of this portion of the ol)ligation, tlie entries are:
90
(a) dccrued Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $Xi, 200 Disbursements (80%) _____I_________________________________ $52,000 Holdbacks (including protit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,200 (The portion of the accrued expenditure represented by the progress payment would again be posted to an account in the subsidiary ledges separate from that represented by the unpaid portion.)
(b) Unliquidated Obligations_ __________________$_-U_,- _%___I -______ Conditional Charges_ ____________-_-_-_ _-____--_ _-_- -_-__-_- _$-C :,SOO On February 25 the contractor delivers 350 acceptable units. The entry to record receipt and payment is :
21.
Holdbacks (25.9%)_ ________________________$_9. _O_G_ ___________-Disbursements __________-__$9-,06_5 __________________________,-___----
(In the subsidiary ledger, the 350 units at a price of $35,000 mould be transferred. to an issues account, $25,935 (74.1 percent) from the account representing the amount of progress payments.)
It is estimated that $20,000 additional performance occurred from February 16 through February 25. The entnes to record the accrual and liquidation am:
22
(a) Accrued Espenditures_ ___________________$2_0_,00-0- ______-____-
(b) UnIiquidated Obligations ____________-____________________ 20,000
Accrued L i a b i l i t i e s _ _ _ ~ ~ , , , _ _ _ ~ _ _ ~ ~ ~ ~ ~ ~ _ ~ ~ ~$2,0,,,0,0,0 ~ , _ _ _ ~ , ~ ~ ~ _ ~ _ ~ ~
Conditional Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.000 The foregoing entries are reversed on March 1.
The contractor reports ‘$40,000 of additional costs through &rch 20. and requests a progress payment.The entries are :
(a) Accrued E~ditures_,----_,-_-----------------_--_-_---_ $43,200
23
Disbursements (80%) ________________________________________ $32, OOO
Holdbacks _ L _ _ _ _ _ _ _ _ I _ _ _ ~ _ _ _ _ _ ~ ~ _ ~ ~ _ _ ~ ~ ~ _ ~ _ ~ ~ ~ ~ _ _ ~ 11.200
(In the subsidiary ledger, the amount of the progress payment mould again be posted to a separate account.)
(b) Unliquidated Obligations_ _________________$_4_3,2_0_0 _______ Conditional Charges. .......................... -- --_--- --- --_- $43,200 On March 25 the contractor delivers 500 acceptable units. The entry to record receipt and payment is :
Holdbacks (25.9%)__,_____-,_-____,-,--,,,-------__,,---_ $12,950 24 Disbursements _________-___________I________________-___________ $12,950 (In the subsidiary ledger, the 500 units at 8 price of $50,000 would be transferred to an issues account, $37,050 (74.1 percent) from tlic account representing the amount of pro,o;ress payments.)
22
By March 31 ths cc
the contract wit11 r .?’
ment. Tommakpe a EL
the rernamder of t K e c ‘
(a) Accrued Expenditur
Disbursements (
Holdbacks _____-
(Separate postings -
(b) Unliquidated Obliga Conditional Cha:
On April IO, t.he fi~
to record receipt and p
Holdbacks (%.9%)--~--
Disbursements _____-
(In the subsidiiry I
transferred to an isrrepresenting
the ar::
The contractor has
This resulted from hc
percentage of 25.926
made at only 25.9 per
The following addit
balance and pay the co
Accounting for G.
Many reci ients of
withdrawals from the
letter-of-credit methoc
over a period of 1 yea1
are shown for only tli-
Let us assume that
a 2-year period. The
estimated) at the end
grantor). The agreen
grant commences in C
‘the letter-of-credit aut
October =as determine
The entry in Septem
credit proce B ure (Tr:
Conditional Charges-----
Vnliquidated Obligati
the ‘contract with additional costs of $2,593 and reque&s a proves payment. To make payment, accnie performance, and record the liquidation of the rernainder of the obligation, the entries are:
25
(a) Acerued Expenditures _______-__________________________ $?, 800 Disbursements (80%) -__-_-___-_-__-__-______________A ______ $2,074
Holdback3 ,,,,,,,-~--,,,,-,-,,,I-------------_,____---__- m (Separate postings would again be made in the si.ibsidiary ledger.)
(b) Unliquidated Obligations _______I______________________ $2,800 Conditional Chargee_ __________________-________$2_,_8@_0_ _________ On A ril 10, the final 100 units are received and accepted. The entry to m r receipt and payment is :
Holdbackd (25.9%) ___________________I___________________ $?, 590,
26
dp
Diibursements ________________-__-___^__________________-__-_- $2,590 (In the subsidiary ledger, the 100 units at a price of $10,000 vould be transferred to an issues account, $7,410 (74.1 percent) from the account representing the amount of progress payments.)
The contractor has received $26 less than the contract price of $lOO,OOO. This resulted from holdbacks being accumnlated on the basis of the true percentage of 35.926- percent whereas payments of the holdbacks were made at only 26.9 percent based upon the ASPR conversion table. The following additional entry could be made to bring the accounts into balrmce and pay the contractor the additional $36 :
H o I d b a c k s , , ~ ~ _ ~ ~ ~ , , _ , ~ , ~ _ ~ ~ , ~ , , , , ~ ~ _ ~ ~ _ _ , - , ~$2~6 , - , ~ ~ _ _ ~ ~ _ _ ~ ~
Disbursements __~______________~___________I_________ - ___________
. .
27
. $26
Accounting for Grants
JIany reci ients of Federal grants receive advances under a letter-ofnit. hdramals from the Treasury are made no sooner than necessary. The letter-of-credit method applies only when the p n t agreement extends over a period of 1 year or more. In the following illustration, transactions am shown for only the first few months of the period covered by the grant. Let us assume that a grant agreement is signed for $600,000 covering B Byear period. The grantee submits a performance report (actual or estimated) at the end of each month (or performance is estimated by the grantor). The agreement is signed September 20 and work under the grant commences in October. The grantee submits its first voucher under the letter-of-credit authorization on October 1 for $15,000. Performance in October was determined to be$12,000.
28 credit prow a ure (Treasury Circular No. 1075, Revised) in order that The entry in September to record the =ant agreement is:
Conditional Charges _____-__________--__--_---_-_--___-_--__ $ s o 0 9 OOo
Unliquidated Obligations_ -_-________-_-___________$_s_oO_. O_OO_ _________-_
23
- -. -----. ,-- . . . --..
. - . . .
Preparation of Reports to Treasury Department
‘hasmy Department Transmittal Letter No. 18 dated June 20, 1968, {appendix C) contains preliminary instructions and forms for monthly reports on accrued expenditures.
24
Aftar posting entFi
balance would reault :
Fonds with Trensr
Accounts Payable-.
Allotment -----_ Conditlonal Chnm
Accrued Expenditu
3010 UrlaRpOrtfoned
5020 Unallotted Agport
8040 Unliquidated 01”
Totel-,,,,,,-,.
The foregoing -z_
md 3020 to get the
Form No. BA-6727. !
form.
the two Treasury fon
ertpected as a result
otherwise, the c-
- .- .. . -. .. _, .. .. .. ~ ~
The foregoing mount ia combined with the balancea of acconnts 3010 and 3020 to get the amount of $31,825 for line 304 of Treaenrg reporting Form No. BA-6727. The balance of account 3040 goes on line 805 of the form the two Treasury forms. Changes m the f o m and instructions may be expect4 as a result of experience gained during the test penod.
Otherwise, the commenta given Pad apply the pmpa&OIl Of
EXCERPFTR OMRe pom
Accounting
There are several 15
receipts and expendih
budget is mostly on a c
3 check is written. Th
for the overall tot&L
check clears through t
tional income accountr
ia., when the Governn
The Commission F
penditures, and finds
when expenditures a- recommends :
Expenditures sAouli
reporting when the G
services-k other
Adoption of the ace
because of the progres.
modern accrual amour
compliance with legisl:
portant agencies are r
mediately, and some fi
quired in certain other
be possible to fully im
be submitted in Jnnuai
internal data gatherin
Receipts are recordec
istrntive and cash E d ,
receipts partly on a cask
Tha Commission beli
crud basis of reportin:
that:
9
i
e
Corporation income
ported hy the Treasuy
uary 1970 budget pr
mends that other me. ‘
os feasible, although
vidual income and em,
Under present timing
cash expenditures and I
• . . i.
EXCERPFTR OMRE POIITOF TEE PRFJSTDENCOTM’~ DCISSXOONN B UDGETC OWXPTS
c- 4
Acconnting for Expenditures and Receipts
There are several timing concepts presently used for recording budget receipts and expenditures. On the expenditure side, the adminlstrahve budget is mostly on a checks-issued basis, recording an expenditure whep a check is written. The consolidated cash budget uses a checks-paid basis for the overall total of expenditures, recordm an expenditure when 8 check clears through the banking system. The B ederal sector of the national income accounts records purchases mainly on a deliveries basis, i.e., when the Government physically receives goods or services. The Commission has examined each of these bases of recording expenditures, and finds them basically deficient as indicators of the time when expenditures are actually made. Therefore, the Commission recommends :
Expenditures should be reflected in the budget mrd Federal financial reporting when the Government incurs liabilities to pay for goods and service-hz other words, on an accrual rather than a cush basis. Adoption of the accrued expenditures concept is possible at this time because of the progress made in recent years in developing and installing modern accrual accounting systems in Federal Government agenciest in compliance with legislation enacted more than ten years ago. A few important agencies are not ready to implement this recommendation immediately, and some further improvements in accounting systems are required in certain other a ncies. However, the Commission believes it mill be submitted in January 1970 for the fiscal year 1971, with preliminary internal data gathering and testing to begin by July 1, 1968. Receipts am recorded at the time the are collected in both the administrative and cash budgets. The nationa9 in come amounts, however, report receipts partly on a cash and partly on an accrual basis. The Commission believes that major steps can be taken toward an accrual basis of reporting receipts. The Commission therefore recommends that:
Corporation income tuxes should bo presented in the budget and reported by the Treasury on an accrual basis, also efectice with the Januury 1970 budget presentation. In addition, the Commission recorn mends that other receipts be accounted for on an accrual basis as 300n as feasible, although it recommends further study in the case of individual income and employment taxes.
Under present timing practices, there are significant differences between
cash expenditures and receipts and accrued espenditures and receipts-in
27
be possible to fully imp r ement this change beginning with the bud@ to
~. . .
__._I.__.__ - - - - -
c
BPPENDIX A
some years totalin billions of dollars. The shift toward accrual accountbetter
index of the current impact of Federal financial activities on the
economy, and should rovide n better reflection of .the financial condition
ing recommended % y the Commission should make the budget totals a
of the Government t K an any of the present tirmng concepts.
process and a ,comprehensive accounting spstem should m r B each of
ACCBUAL OF EXPENDITUREB
A cmnprehm’ve accounting syatena
There nre a number of importmt steps in the Federal ex enditure them : appropriations, obligations, accrued expenditures, program costs, checks issued, and checks paid.
Appropriatians and ob2igath are important because they establish the control points in Federal expenditure pro,grams. Appropriations represent the initial point of decision by the Congress as to the magnitude and direction of future government expenditures. Obligations record that part of the appropriation which has been legally committed by a Government agency. They represent the point at which the Government initiates the formal action with an outsider that will ultimately result in paying out Government funds. Careful records of obligations must be maintained to assure that authority granted by the Congress is not exceeded. Obligations are also an early indicator of the economic impact of Government expenditures.
From the standpoint of determining fiscal policy, expenditures on an accrual basis probably represent the best mensure of the economic impact of the budget. This is the point in time at which the Government actually incurs a liability requiring immediate or eventual payment, including constructive delivery in the c a s of construction put in place and work performed by contractors on specific order.
Program costs a h increasingly recognized as a significant instrument of agency management, budget formulation, and execution. They represent pesources actually used for a program regardless of when such resources were acquired. For this reason, program costs are assuming increasing importance in the details of the budget B p p e d a in connection with the President’s approprirttion requests.
Dibbumem43nt.s ( c h b &wed and checks paid) are necessary measures of Government outgo for Treasury cash management purposes and for analyzing Treasury borrowing requirements.
It is clear that, provided effective accounting systems are in use, it would be possible to enter the expenditure process at any p o i n t o r at several points-for purposes of preparing summary budget statements. The Commission, therefore, has had to decide which measure or measures am most appropriatb for purposes of overall budget summary statements. The Commission concluded that accrued expenditures are that “best measure,” since direct economic impact on the private sector.
28
7
t
I
the accrual is the point of final commitment which has the largest and most f
App~opriationso,b liga
The interrelationshir
tween obligations and c
ations, as broadly ‘
the important first step
ly are mora si nificant
the future coum of L - ‘
has made recommendat
nence in the President’
Recording of obligat
ability of agency appr
recognized as generall:
ance, and are bein i’ep
as developmen t- :oaP
While obligations rix
ance at the program It
dependence on costs),
information OR the itg,
gations. This is desirab
Government, of overal:
readily al-ailxble on otc
many purposes, and dol
ing to note, therefore,
have arranged for the
detail and consistent c
information.
The trend toward bette:,
As indicated above, 1
ure agency per€orman(
requires an accrual ace
receivable, accounts pa:
the period, and capital :
priations, obligations,
costs, it is usually necc
plant and equipment .”
for the acquisition of nE
are not included.
Recognition of the in
proper formulation anc
mentlaid down in th
Procedures Act of 196:
\-elop and install accruu:
by the General Accoun
steady improvement in :
While practices vary E
agencies now use accru:
level than in t fl e aggr,
.. __.~_..- . . . _. . . .. . __ ._. . . . . . . .. .
AppropriatiMla, obligations, ana? cosfs
.. .
..
_ ,.
, -- , . .
The interrelationships between ap ropriations and obligations, and beations, as broadly defined b the Commission, are and will continue to be ly are more si nificant indicators of expenditures at. a detaiIed rogryn . the future course of total expenditures, and in Ehapter 2 the Commission has made recommendations to gire overall appropriations greater prorninence in the President’s budget message than they now have. . Recording of obligations is essential for financial control and accountability of agency ap ropriations. Oblrgations are, however, increasingly ance, and are bein replaced by progqam costs for thls purpose as mpidly tween obligations and costs, are mort 1 y of careful examination. Approprithe important first step in t K e expenditure pTocess. Appropriations usuallevel than in tP e aggregnte. Hoxvever, total ap ropriations do Bet ermine recognized as genera P ly inadequate for measurement of agency performas development o P adequate accounting systems permits. mhile obligations may become less important as-a measure of performance at the program level than they once were (because of the growing dependence on costs), the Commission dehitely feels a need for better information on the aggregate volume of Government contracts and obligations. This is desirable to permit better anal sis, both inside and outside Government, of overall expenditure trends. B uch information as is nom readily available on obligatiolis is either too broad or too detailed for many purposes, and does not relate easily to expenditures. It is encouraging to note, therefore, that the Treasury and the Bureau of the Budget have arranged for the early publication of monthly obligations in some detail and consistent conceptually with available summary expenditure information.
The trend toward better accounting
As indicated above, program costs are being increasingly used to measure agency performance. The accirrate measurement of program costs requires an accrual accounting system, in mhich such items as accounts receivable, accounts payable, stocks on hand at the beginning and end of the period, and capital assets are recorded in addition to the normal appropriations, obligations, and cash disbursements. In measuring program costs, it is usually necessary to include estimates of the depreciation on plant and equipment “used” during the period. However, expenditures for the acquisition of new capital goods that are to be used in later periods are not included.
Recognition of the importance of information on program costs for the proper formulation and execution of budget programs led to the requirement-laid down in the 1956 amendments to the Budget and Accounting Procedures Act of 195O—that dl agencies of the Federal Government develop and install accrual accounting systems under guidelines prescribed by the General Accounting Office. Under this legislation, there has been steady -improvement in Government accounting and financial management.
While practices vary somewhat from agency to agency all but 1~ few
agencies now use accrual systems. The General Accounting Office has ap-
29
c
i
‘L
.. - - _ _ . . - -
~ E N D Y AX proved a number of these systems. Others are currently before the General ,hxounting OEce for ap r o d , and still others are scheduled to be sub-The Commisiion heartily endorses the trend toward the use of accrunl systems. Program costs are an important tool for prograni management . and for agency budget formulation and execution. Moreover, the esutence of modern accrual accountmg systems niitkes it possible to adopt n iiiucii better method of measuring mid reporting Government espenclitures tlian was previously possible.
The concept of &cm& expendilu?es
Accrued expenditures differ from cash disbursements k a m e of net changes in Government liabilities (accounts papble and other accrued li’abilities). In the case of voods and services acquired uncler contract, 8s in construction and defense Xard goods procurement, the accrual basis; wi11 result in reporting expenditures at the time of constructive delivery; :that is, as the work is actu?lly performed to Government specifications. 7~l:eit the Government acqmres mass-produced items, the liability occiiiwancl aeciued expenditures are recorded-nt the tiaic of pliysical deli yery. The Commission considers this recommendatioii to be an estremeIp iriiportilllt and valuable contribution to iin mved budget presentation. IC is should be easily understandable. The business community is already quite familiar with accrual of expenditures, revenues, and costs. Business practices are not alwa s, or necessarily, correct practices for Government. But of the .tiansaction recorded as consistently as possible on t.he boob of Both buyers and sellers. Accrued expenditures also represent a much better measure of the actual impact of Government purchasing ackivities oil tlie economy than obligations or cash disbursements.
Relatimhip to prment system
The roposed accrual concept cannot replace cash receipt and espendimanagement. Cash records are indis ensable for the proper dmharge of ing rn theprivate sector is a necessary !up lement to re lar business profit be discussed in the January budget and no cash surplus or deficit should be presented in the budget summary. The Comrnisslon recommends that Treasury monthly reports on budget receipts and e enditures also be on deposits and Withdrawals should not be called the budget or “another messup8 of the bprdget.”
Reporting of axpenditures qn an.accrua1 basis mill not impinge in any way on the resent appropriations process, or the need for =opting conof congressional control over the exppditure process, and indeed the ommission has recommended steps to highhght appropriations in the budget 80 mitted for approval short f y.
‘
.
rz normal, natural; and straightforwnrc I concept of expenditures n~liicli
share of t K e Governmentls expenditures represents income to pi-
Fa ate usiness, and there are obvious advantages of having the two sides
ture in P ormation for Treasury cash balance management and public debt
the Treasury’s role of “banker” for t R e Government, just as cash accountand
loss accounting on an accrual basis. PI owever, cas r concepts need not
an accrual rather than a, cash basis;-monthly and 3a)i ls reports on cash
t d so ver oE l igations. Appropriatlons mill continue to be the critical P
even more prominent
intent is not to alter tt
any nay.
Finally, accrued ex1
Accrued expenditures
important particular1
Importance of tite acc
The Commissioii re
penditure tran~xtction:
it arises. This is clear,
In such cases there i.
between cash disbursr
these cases there are
rowing out of tlie Fe
fe recorded moje nc
tween cash disbursemi
periods where there iE
nient orders for long 1
or demobilization per
tween costs incurred t
will be properly recorc
Rrogress payments
merits. Advances and
tractors with workinbooks
as assets like ac
xccruaI system.
The Commission b
accrued expenditures
ment for understandir
in a period of rapid d
accrual basis would h
for assessing the econ
disbursements or deli
Furthermore, the Cc
expenditure measure I
proved internal mana
out before, most agenc
agement and agency cf
foster the concept of CI
now on L cost system.
information required
accounting system.
The Commission hz
budget and Federal fi
crued expenditures. Ti
tures have been r:’
~3xpediture8a, nd 8th
figures developed on tk
, .. ... - - .. .. - . . . . -,.__-, .. . - __ . . .. _.. . __ ... .. .. .
,-.
. .
dspENDIx A eren more prominently than now. Tlie Cornmission emphasizes that its intent is not to alter the basis of congressional expenditure authorization in any way.
Finally, accrued expenditures should not be confused \vi th program costs. Accrued expenclitures mensure resources acquired, while program costsimportant particularly at the program level-measure resources used. importance of the accrued expenditure concept The Commission recomiizes that in the vast majority of individual espenditure trmsactions, &e Government‘s liability is liquidated soon after it arises. This is clear, for example, in employee pay or in benefit p a p q t s . Ih such cases there is typically little or no practical difference in timing htwcen cash disbursements and accrued expenditures, althourrlr even in these cases there &re occasional “humps” in monthly c d i disgursement tween cash disbursements and accruals become particularly s@iificatit in periods where there is a rapid increase or decrease in outstandmg Government orders for long leadtime rocurement items, aa in a defense bpild-up twen costs incurred by a contractor and progress payments made to him will be properly recorded as an accrued liability of the Government. Rrogress payments should not be confused with advances and prepayments. Advances and prepayments are occasioiially made to provide contractors with working capital. They will be reff ected on the Gorernment’s books as assets like accounts receivable rather than as espenditures, in an accrual system.
Tlie Commission believes that acceptance of its recommendation for accrued expenditures mill. make the Federal budget a more useful document for understanding the economic impact of the budget. For example, in a period of rapid defense build-up such as during fiscal year 1966, the accrual basis mould lia\Ye provided more timely and accurate information for assessing the economic impact of thq budget than either casli budget disbursements or deliveries as recorded in the national income accounts. Furthermore, the Commission feels strongly that adoption of the accrued expenditure measure would represent a further sxgmficant advance in improved internal management of individual Federal agencies. As pointed out before, most agencies are nom or mill be using costs for program management and agency control. The.accrua1 coycept for budget purposes will foster the concept of cost control ~IaLl l agencies and especially in those not now on a cost system. For those agencies already using program costs, the information required for the budget should be B byproduct of their accounting system.
The Commission has consided the possibility that some users of the budget and Federal financial reports might be confused by the term acrmed expenditures. The Commission believes, however, that once expenditures have been redefined, there is no need to us8 the term accrued ezpenditures, and the tenn ezpenditures mill automatically apply to the figures developed on the accrual concept.
31 rowing out of the Federal overnments biweekly pay structure thnt woul % fe recorded more accurate f y in an accrual qstem. The discrepancies beor demobilization period. Un CQe r the accrual approach, the difference beFeadXty and im plenaentation The Commission appreciates the fact that nlthougli substantial progress hns been made in the improvement of agency accounting systems, it is not yet possible for several key agencies to rovide immediately the information which would be required to comp P y with the Commission’s accrual recommendation. This change will also create increased burdens in tcrms of cost and time for the Bureau of Accounts of the Treasury Department which mill have to process accrued expenditures data, as well as disbursement data.
..
..
. .. i.
Some concern has been expressed to the Commission about possible delays in the month1 reporting of expenditures by the Treasury when the conversion to accrua s accounting is made. Since the Treasury will continue to need the iiiformation it now h~sr,e ports on cash receiph and disbursements should be available with the same timing as at present. Until some esperience is acquired under the accqal system, reports gf accrue4 expenditures n1ap take somewhqt lapgq to compil? than those for cash expenditures. Wh?n fully opera@, hoveyer, the’acc%a! and cash data will’both come from the s p e cooTdm?ted ijpq acc~@iqg s@qs. Therefore, by the time internal tests pf the ne*- system are completed and public reporting begins in 1970, the Commission believes that monthly accrual reports should be available on the same schedule as monthly cash reports. Pending the changeover to the new accrued expenditure basis, the Commission recommends that estimates of changes in accounts a able, a,id other accrued liabilities against various appropriations an8 &XI&, be made available through the Treasury at least quarterly for analytical pukposes quite apart from regular financial reporting. These estimates will aid those experts both inside and outside the Government who are trying to measure the economic impact of the budget. Changes in accounts payable and other accrued liabilities should be reported by the Treasury in full for all agencies already having accrual accounting systems. This would be supplemented on aseIective basis for those agencies (notably the Department of Defense) which do not yet record liabilities in their central accounts, but who keep records of contractor performance on a contract-bycontract bask. These Treasury estimates should provide an interim method of substantidly correcting-for analytical purpose+bnsic shortcoming in existing reports of budget expenditures.
32-
.
i
.- - -- - .- - - - - ... , .
Pelation to the nationu The Commission de:
tions on methods of rec
espenclitures in the 11
these are matters best :
over, the Commissioa 1:
Federal sector aiid the
accounts.
On the other hand,
bosisfor stntin ex er;
present consolif ateS CD
come accounts. It is RI,
if the Federal budget Y
ern1 sector of the ii~tio
basis.
In order to tie more.;
recorded, different CL;
ferently in the nntioiia
grants-in-aid, and sub:
recorded on a put-in-p
tures. Federal interest
basis. However, hard
itcms such as shi buiI
basis. The metlio B act1
the Department of C-.,
hard gods procur;zGL
Government (a cost rf
fixed price contract) n
private enterprises wli
iintional income accouii
The Commission b2
accrued expenditure b
ndionnl incoms and
advmtageousiin sp?
national income nccoim
would eliminate a cor
accounts estimates of I
Therefore, the Commi
and the Office of Busir
version of the budget t
In order to do this, thc
additional data not A
therefore, that the DeF
the Treasury Departr.
Business Economics in
To be consistent wit
corded on an accrual E
taxes, accnials of tnu
APPENDIAX
Eelation to the national income accounts
The Commission does not feel that it should make detailed recommenilations on methods of recrirding statistical measures of Federal receipts and expenditures in the national income and product accounts. In general, these are mntters best left to the economists niid social accountants. Xoreover, the Cornmission recognizes tlie need for a consistent treatment of the Federal sector aild the private sectors of the economy in the national income accounts.
On the other hand, the Commission- is awnre that the different timing basis for statin ex nditures is. one of the major differences between the present consolifat gas11 budget and the Federal sector of the national income accounts. It is also amwe that there aould continue to be (L difference if the Federal. budget were 011 an accrued expeiicliture basis while the Federal sector of the national iiicoine accounh remained 011 its present .timing basis. therefore, that the Department of Defense, the Bureau of the Census, and the Treasury Department lend all possible assistance to the Office of Business Economics in deriving the necessary information.
ACCRUAL OF RECEIPTS
To be consistent with espenditures, budget receipts should also be recorded
on an accrual basis. !foreover, at least in !lie cas of mogt business
‘, taxes, accruals of tax liability represent a significantly more unportaiit
33
ApawDn A i
1 measure of the economic impact of the bud t than do cash colIections of taxes. For these ~easonsth~e Commission Elieves that, in. rinci le, receipts as well aa expen&tures should be accrued in the Fe e%ra1 %udge t. that the problems are somewhat greater in implementing its accrua recommendations in the qse of receipts than for expanditums. In the case of expenditures, the ryuired information will come from the Government’s own accountmg s stems, which are required &ern1 Government currently has no accounting system from which acm t e measures of the accrued tax liabilities of the private sector may be bxtractkd. At present, the Treasury only has this information ‘wheir tax returns are compiled and the tax payments a- actually made by the taxpsyer. Thus, with resent accountmg, a precise measure of accrued taxes The Commission recognizes thak this problem makes it impossible to implement, at this time, accruing all tax mvenues. The estimation problems of tax accrual are greatest for the individual income and emplo ficant from ad economic impact point’of view. The corporation income tax, for which ,it is particularly mportant to have taxes m e don an accrual basis.
The Commission recof f””
b law to be on an accrual basis. In the case o 9 tax receipts, however, the
can be reported on pp some time after the close of any month or fiscal year.
taxes. However, for these taxes the difference between accruals ang mcaesnht
$Eltie3 are ma r er (and the Commission klieves mpageable) for the
?
I:
en& is less si
C O ~ m t hhCO ?lW t-8
The Commission’s recommendation, therefore is that the budget include corporation income tax receipts on an accrual basis by fiscal 1971, at the same time that accrued expenditures are included in. the budget. It is widel accepted that tax liabilities are a much more important determinant olco rate spending and financial behavior (and hence ko-(and tax EabiIities) are exceptionally volatile, a time lag between accrual and payment of taxes of only 8 few months during an expansion or slump in the economy c3n produce. sharp differences between the actual and apparent economic impact of corporation income taxes.
Legislation requiring more current reporting and payment of estimated taxes has substrmtially reduced time lags between accrual of corporation tax liabilities and the a ent of corporation income taxa Nevertheless, ihes time lags can stiR gquite si ificant. Furthermore, the same legislative and administrative changes w%ch have brought corporation tax paymenta to a more near1 current paym.ents basis actually o rate to produce, during the period o 9 speed-up, a sxzable excess of d p a y m e n t s over what otherwise would have been collected. .Reporfing co ration income the corporation income tar in better pempective.
The Commission recommends that the Treasury undertake a study of
possible ways to improve the basis for estimating mrpo$ation incomb tax
nccnials, rnth the expectation that the new system m11 produce data for
internal review and testing beginning Jul’ 1,1968. The Commission aIso
to work out the details of monthly reporting.
nomic im act) Tt aOn the cash payment of taxes. Since corporate profits
taxes on an accrual basis during such penods will put Tt e true yield of
recognizes that some further study by the Ipre asury Department is essential
i
I
Idividual imq8 t
In general, the C4
accrual basis as soon
ascertain the amount
is only vey slight ec
ties and m? ections fo
neotls receipts on an a
information should f
system once it is in OF
Individual income
easily be placed fully
the existence of a tax
Hosever, it would 1
a gregatetaxliabilil
fife their ha1 return:
the end of a fiscal.yr
compIetely accmte 1
The national inco
tares essentially on f Ef any economists ap
behavior is more strc
the accrual of tax !in
the amount of their
talc returns and the at
Othef consideratio
accrual basis. Fi-rst,
nsuallg as volatile, 1
diring periods of ec
portion of the indivi
into the Treasury w
grnduated withholdi
It should be noted
if indiyidual income
accrual basis, during
lections lag behind a
greater than would
periods of declining
deficit lower than UI
reiterate that no ow
impact of Federal a
accompanied by mea
In Summary, the
indi\-idual income t:
economic impact ani
s
EFFECT (
At present, tl;e effi
tioas regarding accr
APPE??X
IdWuaZ inconze k e a and other receipts
In genersl, the Commission recommends reportin all r e d ts on an tween liabilities and c+ ections for such taxes). As another exam le, reporting miscellane!~ iwr,e ceipts on an accrual basis should pose no pro lem, since the required information should flow normally from each agency’s accrual accoUnting system once it is in operation.
Individual income (and employment) taxes, on the other hand, cannot easily be placed fully on an accrual basis. There is, of course, no question of the existence of a tax liabilie at the end of an individual taxpayer’s year. However, it would be ditiicult to estimate precisely at earlier dates the gab tax liability for all of the more than 60,000,000 individuals who #%ir h a 1 meturns at a later date. As a result, it may be some time after the end of a fiscal year before the availability of h a 1 tax returns makes completely accurate revenue figures possible, The national income and product accounts record individual income tases essentially on a cash payment basis rather than on an accrual basis. Xany economists appear to feel that in the case of individuals, spending behavior is more stron ly influenced &y the cash ayment of taxes than by the amount of their accrued tax liability prior to the preparation of their tax returns and the actual payment of tax.
Other considerations suggest that it may not be of major signifkame for economic impact analysis to record individual income tases fully on an amnia1 basis. First, personal income and individunl income taxes are not usually as volatile, relatively, as corporation profits (and tas accruals) driring periods of economic expansion or contraction. Second, the larger portion of the individual income tax is withheld a t the source, and comes into the Treasury with only II short time lag, especially under the new graduated withholding system.
It should be noted that if Federal receipts are only partially accrued, Le., if indkidual income and employment tax receipts are not reported on an accrual bds, during periocls of rapidly rising personal incomewhen collectipns lag behind accruals-total receipts would be lower and the deficit greater than would occur under a full sccnial basis. Conversely, duriag periods of declining personal income, receipts would be higher and the deficit lower than under a full accrual basis. It is important therefore to reiterate that no one deficit figure can adequately portray the scope8and impact of Federal activities. Use of such budget figures mill hare to be accompanied by meaningful interpretation.
In summary, the Commission believes that the question of accming wmal basis as won as ossible. For instance, it sho 3 d not be &cult to ascertain the amount of ius iness liability for excise taxes although there isody “7 slight economic significance to the minor lags Le I!
5
I$,
the accrual of tax liabi f ities. In fact, many indivi B uals may not be aware of # indiridual income taxes requires further stiicij-.
EFFECl’ OF TIE COXUXSSIOS’S RECOSKXEXVATIOS’S At present, the effect on bndgt totals of the Commission’s recommendations regarding accnted eslmiditmes. and receipts can only be estimated.
35
Table 2 shows, for fiscal years 1%6-68, the approximate effect on budget totals of the Commission s accrual recommendations; Chapter 9 pFsents estimates in more detail for a longer time period.
In implementin the proposed changes, the Commission recommends n consistent basis as possible with the new concepts, even though precise accountin support for such adjustments is lackin Acceptably good eetimates can% made without much di5iculty, as has%eem done in reparing the fieures in Table 2 and in Chapter 9. The comparability of bugget totals over a period of time is important. The Commission feels it is far better to use approximations than to have the nst budget totals precise.in terms of pnrisons of the budget totals for different years. Nore specifically, the Cqmmission sees no objection to including, in reports of budget totals for prior years, adjustment lines below the present accounting figures and just trbove the bud et total lines, representing estimated timing adjustments. for the excess of corporation income tax accruals over c’ash deposits apd one for other rerenues. Two timing adjustment lines would also be $pproprinte on tlie expenditure side, one for the Department of Defense qnd one for all the other agencies of the Governmelit combined.
TABLE2- EJect on the budget of changes in timing recommended by ithe
Commission (compared to present consolidated cash budget)
thnt budget totals f or years in the recent past be adjusted to be on as nenrly
accounting support but seriously de P ective from the standpoint of com-
Two timing ac Q justment lines would be appropriate on the receipt side, cine
i
I
f
• 3. 9
. I
• 3. 9
RECKIPTS
Excess of tax accruals over cash deposits:
Corporation income taxes- - - -_-___________
Other taxes ______________________________
Total effect on receipts __-_____-_________
EXPENDITURF3
1. 2
‘- 1.. 61
1908 estimate
4
• 0. i
1. 1
+. 4
• 7
• . 1 * 1. 1
+l.6
• 1.2
36
Ex
BIJURTN No. 68-1(
To THE Ihm8 OF E
Smmm : Reportin
tire Bum
1. Purpose, - Trhii
on December 18,196
must be brought to
proprinte ste s to in
also indicates that
brought into the cer
mental basis for the
Commission on Buc
data in budgets and
appropriation or fur
basis, IS essential to t
instnictions, so that
these objectives.
2. Bmkgrmnd. st
Act of 1950, as amet
each executive agenc
prescribed by the Co
to be maintained on B
The principles ant
have provided furt
Bureau of the Budgt
submission of cost+
counting system whic
obligations and disb
Sears re uired year-e
counts receivable and
tables and Treasury
the basis of checks IS
The President’s C
October 10,1967, rem
• Accrued expen
for summary I
and fun 3 , the amour
I
Bu~urrm No. 68-10 April g6,1968.
To THE HILADS OF EXECS
w c r: RepoTting accrued T W ~ Wan d expenditwea to T~emrayn d
1. Purpose. Transmittal Memorandum No. 31 to Circular No. A-11, on December 18,1967, announced that the adoption of accrual accounting must be brought to early completion, and that agencies should take appr0pi; int.a ste s to install or improve systems of accrual accounting. It was also inchcad that data on accrued expenditures and revenues will be brought into the central reportin system of the Treasury on M experi-Commission on Budget Concepts, looking toward the ater use of such data in budgets and public reports. The establishment of the status of each appropriation or fund at the close of business June 30,1968, on an accrual basis, is essential to the plan. This Bulletin gives further information and instructions, so that each agency may proceed promptly to accomplish these objectives.
2. Backgmund. Section 113 of the Budget and Accounting Procedures Act of 1950, as amended 31 U.S.C. 66a), requires that “. . . the head of prescribed by the Comptroller General, cause the accounts of each agency to k maintamed on an accrual basis . . . .
AND ESTtire
Bureau of the Budget
I mental basis for the fiscal year 18 6 9 as recommended b9 the President’s I
i
!
99
. each esecuhve agency sha \ 1, in accordance with principles and standards
counting system which proVi Y? ea such information integrated with data on
and fruwna , t he accounts payable and oFt e x accrued linbihties, less the ac-
The principles and standards
have provided further details
Bureau of the Budget Circular
the Comptroller. General
to accrual reqturements.
some years required the
siibniission of cost-type bu ts wherever an agency has an accrual acobligntions and disbursements. The Treasury Department has for some uired year-end reports from a ncies to reflect, by appropriation counts receivable and other accrued assets. However, the principal budget tables and Treasurp reports on Government outlays have been stated on the bnsis of checks issued and cash collected, rather than the accrual basis. The President’s Commission on Budget Concepts, in its report of October 10,1967, recummended that :
• 4ccmed expenditures be used in lieu of checks issued as the measure
37
for summav budget statements and hnncial reports.
kmxx B
• Receipts of the various agencies be similarly budgeted and reported on an accrual basis.
• Accrued expenditures be defked to include the %onstructii-e delivery” basis.
• Use of such data be tested, beginning with the opening of the fiscal year 1969, with t.he ex ectation that the budget submitted in JiuIu-
• After the new concept is in use, the term L4expenditures”b e automatically applied to the concept which during the transitiou io called “accrued expenditures.”
’ -Monthly financial reports from the Treasury be placed on the same basis as the budget, with the belief that by July 1970 such montIily accrual reports should be on the same time schedule as monthly cash reports have heretofore been.
• The cost accounts of the Gowimnent agencies be continued aiicl’ refined.
• Program costs be continued ‘as significant instruments of management, budget formulation and execution, along with assuming increasing importance in connection with appropriation requests. The President last December accepted the recommendations of the Commission with regard to the basic concepts for the budget, directing that they be placed in effect is promptly as feasible.
The Commission also recommended that there be pursued the objective of putting the Federal sector of the national income accounts on the same basis of accruals as is recommended for the budget. This is under study.
3. The- c m e p t of accrued expenditures and accrued ~evenuc8. The attached statement on the concept of accrued expenditures and accrued revenues (Attachment A) is hereby promulgated for me by all agencies. The staffs of the Bureau of the Budget, General Accounting Office, ancl Treasury Department have prepared the attached answers (Attachment-13) to a number of questions about the concept and its applications during the coming year, which have been m i d in preliminary discussions with staff of various agencies. The definitions and the interpretations of the most widespread applicability will soon be incorporated in permanent instructions.
Your attention is invited to the major changes in the concept as compared with the current or earlier concepts and interpretations of accrued expenditures under Bureau of the Budget Circular No. A-34. Under the refined concept of accrued expenditures herein promulgated :
• Performance by the payee, through which he earns a payment from the Government, is the test to be applied. Therefore, the reporting of accrued expenditures is not to wait until physical delivery by the contractor ‘and receipt by the Government, or until title passes to the Government in those cases where n contractor manufactures and fabricates materiel in accordance with Government instructions. Instead, the accrual in such cases is to be reported at the time of constructive delivery and receipt. ary 1970 be on the new i ash.
38
*
• The crucial
Governmeni
l@ly “du
amounts eqr
payee, and
the Governr
• The concepi amounts eax by the prim(
• Advance pa
They are as
they are en
qinguished,
hold impro
latter terms
formance- h.
been record
accounts in
With respect to
receivables, wheth
revenue.
The refined conc
agencies in prepar
receivables under ’
4. Ap Zication G
account. It mi11 no
the Treasury DeF
applied costs (am
replacement for d
does not change th
• 4 principal objt
tain reIiable result
wide financial ma1
. which the figures I tem at which the
expenditures an 2 :
cated by appropri
forth in paragrap1
the criterion of m;
conce ts. It must bt
grounded in the bt
subsequent adjustn
and examined, and
As in the case c
concept in Bureau
will be used where
U C ~ by sub*
tion wil P be recon
and t R at figires i
APPENDIBX
• The crucial point is the time when the money is first owed by the Government, as distinguished from the time when the money is legally “due and Fable..’’ Thus accrued expenditures include amounts equal to t e liabilities for unbilled performance by the payee, and the amounts of the liqbilities that have been billed to the Government.
• The concept is made explicitly applicable to the identification of amounts earned by contractors or grantees on the basis of erformby the prime contractors and grantees.
• Advance payments are never to be considered accrued expenditures.
They are assets, which are liquidated (and become expenditures) as , they are earned by the payee. Advance payments should be distin ished, however, from deferred charges (for example, lesehol r improvements) and the acquisition of inventories; the two. latter terms should enerally be reserved for situations where performance has alrea t y occurred, and the accrued expenditure has been recorded, even though the expense is to be recognized in the accounts in part or in whole at a later time.
With respect to revenues, the refined conce t requires recognitioii of revenue.
The refined concept should resuk in similar changes in the ractices of agencies in preparing reports on accounts payable, other lia&lities, and receivables under Treasury Department Circular No. 065.
4. Ap Zication o the new c0ncept.s. Expenditure and revenue information m f b e recor d ed at the level of the appropriation, fund, or receipt amount. It mill not usually be required by the Bureau of the Budget (or the Treasury Department) at the level of individual activities, where applied costs (and in some cases obligations) are required. It is not a replacement for data now obtained at the object classification level. It does not change the obligation basis of appropriations or apportionments. A principal objective in the application of the new conce ts is to obtain reliable results ‘for use b agency management and in (33 vernmentwide financial management. Jh e ultimate test will not be the method by which the figures are derived, or the level of the agency accounting system at which the are recorded, but the reliability of the data on accrued expenditures anzrevenues, and on related assets and liabilities, as indicated by appropriate techniques of verification. While the conce ts set forth in paragraph 3 above and in the attachments are firmly estabfished, the criterion of materialitg is applicabb in the implementation of those conce ts. It must be recognized that absolute precision may not be attained, grounded in the best information then available, may be subject to some Subsequent adjustments upwards and downwards as invoices are received an13 examined, and as bills are paid or settled.
AS in the case of earlier statements on the application of the accrual
wnapt in Bureau of the Bud,& Circular No. -4-34, “the best estimate”
d l be used where the exact amount of accrued espenditurea is not known
39
Dsce by subcontractors and subgrantees, as well as the per P ormance
.
-
receivables, whether billed or unbilled, and t i e exclusion of unearned
and t R at figires originally reported as accrued expenditures, though’
.4
Ammx B
and cannot feasibly be ascertained at the time that the accrual should be recorded. However, “the best estimates” should avoid‘ arbitrary proration of uarterly estimates into thirds for each month, and similar formula spproa&es; it is important that the reported accruals be a sensitive reflection of the transactions and performance which actual1 occur and a mere.pmrating of estimates over consecutive months wdnot a L v e this purpose.
Xonthly reports on an accrual basis should normally be obtained from major payees, where the amount accruing is dependent u on sums earned (costs mcurred or other erformance rendered) and ffl e measurement thereof is basically in the 1 ands of the contractors, grantees? subcontracton or subgrantees. This will include- as a minimup +e State governments, and other large governmend mstrumentalitres, mibtutions, and contractors doing busmess vith Federal agencies.
E s t h t h and statistical devicas may be appropriat? for determining accrpls m .t% ose cases where such procedures will elirmnate the need for gettmg special reports from IL large number of payees with smaller contracts, grwts, or other obligations from the Federal Goyernment. Such methods will be susceptible to verificntion as to their vftlldity. However, as of the end of each fiscal year, be inning with June 30,1968, .a strong ?ffort should be made to obtain and record full and accurate accrual mformtrtion, both from within the Government structure (inclndin interagency transactions as well tls matters under accountyear-end reports must attain ta high degree of accuracy, even if interim reports me not able to reach the same standards during the early months of the test period. Thereafter, regular monthly re orts should be as close porting deadlmes mill be tighter than at year-end.
5. Accrual uccomting gemralty. While the major emphasis of this BulIetin relates specifically to obtRining reasonably accurate and timely figures on accrued expenditures and revenues, the efforts to impIement it should be carried out as part of the financial management program in accordance with the overall principles and standards for accrual accountkrg prescribed by the Comptroller Geiiernl. That is, data on accrued erpnditures .and revenues should be properiy integrated with information on cash hransactions, on applied costs, on obligations, and on other facets of agency finnnces.
Improvements in agency information on accrued expenditures and revenues should be accompanied by attaining more accurate data on applied costs, and by exerting better accounting control over assets and liabilities.
The accrual accounting system should serve managerial needs of the
agency, as well a3 assist in serving overall Government purposes. Program
and operating personnel should be encouraged to understand and utilize
the accounting system results. In the case of grants and contracts, the
s8me reports on finmncial performance and status should serve the program
personnel and the financinl management system. In some cases, financial
data on the use of grants and on progress under contracts now reach an
40
hg controei of the agency itself), and from contractors and grantees. Final
to the ac.cur9 of fmnl year-end reports as possib P e, considermg that reagency,
but do not 1~
management better E
6. Action pro ra7r
that steps are ta en 1
a. To rovid~fo r
assets an 5 liabiiitieg
and inter retatlons I
ties” in t gi s case re;
I counts payable, unes
wise classified. The I
md be reported to t
L b. To mpke accou
this Bulletm, and in
and standmds. Whe
troller General, the 1
s stems riortpsub;
nyready geen a prov
c. To take necessa
to contractors and g
Treasury’s reportink
rrith transactlons fo
d. To re uim B I
needed to facilitate
manner and with le!
the jear.
e. To proride for
June 30,1969. IYlier
a comprehensire acc
is in operation and R
techniques should bE
7. Actions of cent
era1 Accountinq Off
tioiis relating!c. thi:
cspenditures in BUI
by those contained ITlie
three central
of the operating ng
groups to propose
nrens of common 11
constructire de:;rer
financial re1 atiodi i
; of these erplorniion
t inentnry or amend;l:
tentatires of pnrate
tutinns. It is also ex
i
Accounting 0 P ce.
during the ‘x scnl yert
01 Tlie working pro“
APPENDIX B
agency, but do not reach the accounts. Corrective action can make financial management better serve the needs of program revism.
6. Action pro mn for each agency. The head of each agency will see that steps are d e n promptly and competently as follows :
8; To redds for a com rehensive and reliable crinventory” of accrued
1, : ‘assets ant liabilities as of ;P une 30,1968, in accordance with the definitions
and inte retations in this Bulletin. The phrase “accrued assets and liabili-
. .. tidy in ftpus casa refers to accounts receivable, advances outstanding, accounts
psyable, unearned income, and accrued funded liabilities not other-
• wi6e classified. The results will be established in the accounts of the agency, . and be reported to the Treasury in accordance with its instructions. . c. To take necessary steps immediately, both internally and w.ith regard to contractors and grantees, so that there can be timely compliance with Treasury3 reporting instructions on accruals nnd related dntn, beginning with transactions for the month of July 1968. rocedures by financial management staff durin tlie2 s cnl year 1909. an g the ncloption of such additional action ns neefie% to facilitate tlie obtaining of better accninl data in a more tiiiirly manner and with lesser effort tlinii may be possible in the first month of d. To r uire a revism of f The working groups will be in contact with, and seek advice from, rcpre-*entatires of private industry, of other levels of Government, and of institutions.
It is dso expected that tlie proposed further regulations, so far as
. . - . - .... . .. . _.. .~ -. -
i AppmwDIx B they affect other levels of overnment, will be offered for comment through the customary channels o f the Advisory Commission on Intergovernmental Relations.
During the forthcoming year the Bureau of the Budget and the Treasnry will review various reports now required. While thereswill temporarily be some necessary overla pin between the new reportmg requirements and the older reports, &e o%jective will be 40 inte te the reports this Bulletin shodd not be construed to revoke existing reporting requirements.
Attachments
and elimite such overlapping 89 soon as prachcable. Yn the meanwhile
CHARLEJS. Zmm,
Dimetor.
THE 3fLiXIN3 OX
(Under the new
expenditure account
tures and accrued I
10n.n account is inea
write-offs, all of wh
repayments collcctec
within the expendi
accounted for mid r
colleoted. The i.espel
to as “accrued expc
will include some 1
collected basis.) .- -
Accrued expendit
requiring the provi:
erty received, (2)
grantees, lessors, an(
programs for which
as annuities, insura
grants).
Expenditures ICC
whether invoices ha
or other tangible PI
any such espenditur
The portion of pay1
(such as, advances)
Accrued expendit
in amount over tim
timing of the eyents
The concepts of
of accrued expen$
performs for the C
expenditure should 1
Accrued expendit
. cally accrued ex en
Government, w en
consumption of gooc
The charges for a
the following credit:
a. Reduction of
kneous with expend
b. Reduction of a(
expenditure.
42
A~ACHJIEAS T
Bulletin Xo. 68-10
. THEJ IEISSISG OF A c c n ~ ~EoSP ESDITURAESDS ACCRUERDE VESCES
(Vnder the new budget concept tmnsactions are divided between the
expenditure account and the loan account. The concept o€ accrued expendi-
. . titres and accrued revenues.relatcs only to the expenditure account; the lorn account. is measured by checks issued in disbursement of loans (less
write-offs, dl of which are chargeable to accrued ex enditures) and loan repayments collccted. A few loan programs have by B efinition been phced within the expenditura account; until further notice they will also be accounted for and reported on the basis of checks issued and repayments collected. The respective totals in the expenditure account mill be referred to as “accrued espenditures“ and “accrued revenues” even though they ~ 3in1cl ude some loan programs stated on the checks-issued and cashcollected basis.)
Accrued Ezpenditu~e.9
Accrued expenditures are the charges incurred during a given period requiring the provision of funds for: (1) Goods and other tangible property received, (2) Services performed by em loyees, contractors, grantees, lessors, and other payees, and (3) Amounts kcoming owed under programs for which no current services or erformance is required (such ,pnts).
Expenditures nccriie regardless of when cnsli payments are macle, of diether invoices have been rendered, or, in some cases, of whether goods or other tangible property have been physically received. The portion of any such espenditures which is unpaid nt 8 given point in time isa liability. Tlie portion of payments made for which the expenditure has not accrued (such as, advances) is an asset.
Accrued expenditures, obligations, and disbursements become identical in amount over time. The differences in measures am differences in the timing of the events.
The concepts of rfonnance and earning8 are critical to the definition of accrued expen$kes. When a contractor, vendor, or other party performs for the Government, earnings have accrued to him and the expenditure should be recognized at that time.
Accrued expenditures include both expired and unexpired costs. Basically accrued ex enditures measure recelpt of goods and services by the Government, FF R ereas applied (expired) costs reflect the use and consumption of goods and services by the Government. The charges for accrued expeiiditures are normally matched by one of the following credits :
Reduction of cash with Treasury-when disbursement is simulhmus with expenditure.
b. Reduction of advances-when disbursements were made prior to the expenditure. as annuities, insurance claims, other bene K t payments, and a few cash
43
!
!
i
I
c. Iiicrease in accounts payable or other accrued liabilities—alieii disbursements nil1 be made subsequent to the accruing of the expenditures.
Constkctive Yecei t of goods or other tangible property, rather than
physical receipt or t fi e pnssing of lepl title, is the measure of tlie accrual
in certain cases. When a contrgctor provides goods to the Government
which he hoIds himself available to sell to others, the accrual occurs when
physical delivery by the contractor and receipt by the Government takes
place and title passes (that is, when goods are either delivered to tlie Govenunent
or to a carrier acting on behalf of the Government). However,
when a contmctor manufactures or fabricates goods or qui ment to the
Goyernment% specifications, constructive recei t occurs in eac P 1 accomtrng
period when tho contractor enrns II portion o B the contract price, and the
accrual t a k e s e as the aork is performed. Formal acceptance of the
aork by the
The accrual basis, among other things, measures what is owed between
the arties, whether or not it is “due and pnyable” as soon as it becomes
owe:. In general, the Government does not owe on its obligations until
performance takes place on the part of the other party; it does not owe on
cn CISa nd equipment of n type sold generally until hysical delivery has made. However, once performance occurs, the e overnment owes for
it, even though it has not yet been billed by the other party.
• 4drance payments including prepaid expenses are assets; they are not accrued expenditures. They develop into accruds only RS the money is earned by the payee, at which time the advance outstanding becomes reduced and the accrued erpenditurc is recognized. If an advance is neither earned br the payee nor returned, it becomes an accrued expenditure when its uncollectibilitp is determined, at which time it should be recognized in the accounts. Howerer, “deferred ch~rges“w hich extend over a substantial period of time are counted :is accrued expenditnres at tlie same time and in the same manner as the acquisition of inrentories and long-term wets (for example, leasehold improvements).
In some cases the performance required by the Government is directed ton-ard a third party rather than to the Government itself (for example, R contract for medical services to be rendered to patients, or a grant for welfare payments). Eren in such cases, tlie timing of the performance determines the time when the money is earned and thus the time when it becomes an accrued expenditure.
Where a contractor, a grantee, or even another Government agency (to which there is an obligation or mi advance payment) performs through a subcontractor, subgrantee, or other party, it is necessary to determine the timing of such performance-generally foilowing the same rules as if the principal had performed directly. Therefore, in B cost-type contmct requiring specific performance according to Government specifications, the contractor’s earnings, and therefore the Government’s accrued expcnditures, will be measurable, at least in part, by the amounts In the c a s of tr fixed-price contract, requiring specific work according to . the Go\-ernrnent‘s order,’ the accrual is ineasured by the earnings of the vernment is not a test.
01 the subcontractors’ costs and a pro rata share of fees in a given period. 4
contractor, determj
by the proportion 8 during the account;
In those cases \Th
being charged to t
authorization, the
fueniid deidtu. reA icsc rreuceodr das
On the other h
normally funded a
cause the recorded
concept of accrued
prevented by the
than had been rra
should be taken m
Accounting for
and accurate ‘wcou:
accrued expenditur
. adjustments in ex€
came, on a cumula
exceed obligations
The reIationshi1
expenditures and (
stich as the followir.
1. Relationship to Disbursement:
MINUS in(
PLUS in1
EQUALS ac
2. Relationship to
Obligations in
MINUS in(
an
EQUALS ac
3. Relationship to
Applied costs
PLUS in,
MINUS de
MINUS in1
le:
EQUALS nc
dC<
Accrued revenue
81‘13 a source of f~
Government, (2) (

chasers or their a ents, (3) hnounts becoming owed for which no current b e Government is r uired (such as fines and forfeitures operated insurance programs), and (4) Amounts collected in cash in the casaof gifts to the United States.
The concepts of perforinance and earning$ are vitnl to the definition. The revenues are earned by the Government and are owed to the Governrformance occurs, regardless of the timing ?f colliction or ex-eu . ?:::gr billing has occurred. Receipts collected m advance of performance am unearned mvenue . (deferred income) until performance occurs, and develop into adcrued revenues M the money is earned by the agene concerned.
The concept is applicable to revenues of all types of funds included in the bucigeh including appropriation reimbursements. Where revenues will be credited upon collection to an appropriation account for B year that has not yet started, the accrual will be accounted for and reported nnder the sgmbol of the future account in the period in which the earnings actually take place. amounts shodd be excluded from the accrued revenues. Tlie normal metliod of doing this is to reduce the accrued revenues on an estimated basis ns the, money is earned, and concurrently establish an allowance for possible losses on collections. Write-oEs which are not charged to such an allowance, or special adjustments to such an allowance, should be trented as adjustments to accrued revenues in the period when they are recognized in the accounts.
• 4ccountng for accrued revenues should be accompanied by full and accurate accounting for assets and liabilities on an accrual basis. Whereever orders received are used as a basis for obligating, as is permitted for interagency transactions where the orders are 3 valid obligation of the ordering agency, accrued revenues should be appropriately rel3ted to such orders through an account for unfilled customer orders. The relationship for any given accounting period between accrued revenues and certain other concepts may be expressed by formulas such as the following:
1. Relationship to cssh receipts:
feernfeodrm, lsnntecrseb syt accruing on loans an3 premiums earned on Governmentvme
rerenues earned by the Goveimnent prove to be uncollectibIe. Such ‘
Cash receipts
PLUS increase in accounts receivable
MINUS incrense in unearned revenue
EQUU accrued revenues
2. Relationship to customer orders received (in the case of interagency increase in unfilled customer orders (whether collected or uncoUected) transactions) :
Customer ordm received
MINrJS
EQUALS accrued revenues
40
The coilrention of
reheiiient on small i-
\vi11 ordinarily recor
‘ periodicds. Siniil?rl,
rereenue the occIylol
month in p?yinent fc
plished during the fo
Xor is. it necessnrj
clue, yovided that t
and t 1st the oi-era11 r
On the other him(
accrued is si iiificnnr
of a thousand small
penclitures, it is cleai
gate should be inch
Similarly, for a? act(
enment periodicals,
significant enough tl
accounts, thus resulti
basis of sums earned.
There should be a
basis for all accounti
whatever organizatic
it should be subject tc
the tota1.w 3 requirt
. - . . .._
• . . q:--
.. -.
ACCOUNTING FOR ACCRUE0 EXPENOITURES
UNITED STATES GEHERAL AGEOlNTlOIC OFFICE 5
• . - - - 1989 i . . . - ..
c
QWESlTOX8 1Lh
EXPE
[In preliminary dis
agencies, a number of
Bureau of the Buc
Department.]
1. Queetion: Will I
budget activities0
&mer: It is not e:
be requimd by the
below the appro riatlc
av-ent-wiL C r S
urn a few splits ( 3 be made h o r n as
Ap lied cost infon
BCCO mce with Burer
are &own below, tog
3
indalla&on with resp
tw Mtli tegErd ta 3
currency accounts do r
reportinkto Trensur;
counts. e introducti
currency accounts ma.
1969.
3. &w8t&m: We ha
and reporting from c
timely reports shortly
date are mchded in t
Ansu?er: Financial
others outside the age1
Two alternatives map
8. The preferable n
of the month, and mnb
in the early da s of th
b. Ales referable
h
This is especia s ly desi
contractors, f ut requir
b accounts.
APPESDIUB
The convention of ainteritility should be applied to exclude the need for
refinement on small items. For esninple, it is not mticipated that nn agency
wilt ordiharily recoivt as an advance the prepayment of subscriptions to
priodicds. Similarly it may not be necessary to segrepte as unearned
re~mue the occvioiial small collections received toward the close of a
month in payment for reproductions of records, qtc., which will Lw hcconiplished during the following month. .
Xor is-it necessary to qeek absolute precision on larger cmo~.@ being
• clue, rovided that the robable deviation from exactness is immaterial,
-
. On the other hand, where the ag-gegate of expenditures or eyenus rccrued is si lificant, even though coinposed of a number of small items; the total.wil f require explicit recopition. For example, if the. aggregate of a thornnil small transactions represents $100 mil!ion of akrued ex- . penditures, it is clearly 8 material amount and the estunate of the.aggregate should be included, even though no one transaction is re y large. Similarly, for an account that has a significant sale of subscriptions to GOYernment periodicals, the. unearned rewnue at any given time may be sigdficant enough to require:recoaition by tin aggregate entry in the rccounts,.thus resulting in placing tyie total accrued revenues on the correct basis of s u m earned..
Tliere should be. adequate documentation received or established rs a
basis for all accounting entries and reports. The documentation may be at
whatever organizational level is deemed most suitable by management, but
-
.
. nid tf iat the ovemll res uf ts are reasonably reliable.
• it should be subject to verification.
47
BpPlLwDxx B ac~rnalso ccurring between the closing date and the end of the month. Such treatment might mean that the estimate should be recorded in the accounts at the time of the early closing, and reversed at the beginning of the following month.
4. Question: What rocedure shall we follow if reports from some s~countingstationssref; e layed 1 Awer: It is hoped that fum instnzctions will be given to accounting stations to initiate their reports in time to allow for slight delays in the mails. It is not reasonable to assume next-day or second-da delivery of aU domestic mail, and agency rocesSing schedules should a1 9 ow appropriate leeway. Even 50 there wig be some occasions when station reports are missing, particdarly in cases of stations in forei countries. In such situations the central office of the a p c y s hould incg; u” de in its reports, on behalf of the missing station or stations, its best estimates for the accounting period. The actual report should be obtained and processed aa yon as feasible, and corrections effected with the Tremuv, in accordance with procedures announced by the Treasury, before the next report is due.
5. @ w t h : Will additional time be iven for closing the accounts at the end of a fiscal year, in order that t % e accrual data may be refined? Akurer: It is antici ated that regular re rting deadlines will be obweeks after the re Jar June report is made. For other reasons, not connected with the &nge to the accrual basis, it is quite likely that the present Se tember 30 cutoff for finalizin status of ap ropriation and fund In preparing their procedures, agencies should contemplate accomplishing the final closing of their accounts with a consolidation of summary data within 60 days after the end of the fhal year. The adjustments that occur between the re lar June report and the ha1 closing should be minimal ; the system mil ffn”o t be functioning correctly if there are substantial addikions to or deductions from expenditures to be accomplished as a part of the final adjustments.
6. Questh: Is accrued annual leave to be included as an accrued espenditure?
Anszaer: In most cases, no. For nearly all appro riations, accrued leave as terminal leave. For most revolving funds, leave currently accruing is treated as a funded liability, and as such isareportable as an accrued espenditure. The basic answer IS: accrued leave IS to be reported as an accrued expenditure ody to the extent that it is “funded”.
7. Question: How can we get precision for such items as travel? While we know the amount obligated for travel orders by the end of the month, we will not know the amount to be reimbursed for travel claims until they are presented in the folloming.month, and the amount of carriers’ claims even at that time may be subject to change later as their invoices are examined.
Anstoer: Absolute precision is not expected. On a cumulative basis, accrued
expenditures should include the amounts audited and paid for travel
performed, and the most reasonable estimate for travel performed which
50
month inc.p u ding at the end of tR e” year, but that in addition
stheheerde wevilel % some refinement and revision in the accounts for a few
accounts 4 or reporting to Treasury wi Q 1 be change B to an earlier date.
is an unfunded liability until the time that it is ta E en or becomes payable
llrrs not et been paid
out of n J vnnces for wf
cases, therefore, on an
within a fiscal year - recent period and fai:
of the year.
8. Qw8th: This s
actions such as comn:
d u m should be follc
correspond to calenda
dered 12 times IL year, 1
months.
Answer: It is perm:
c o w ond with the(
a similar obIiption-tI
encea in the mofith’s t
likely to be material.
for personal services;
the end of the month.)
and utility services pf
end of the billing per
made for recordmg il
applied cast.
9. &wetion: Witli the end of a month, v applicable to.both pas
AW~T: It is pre:
expenditure in the ac
of unperformed tran
might even be record€
tion request is exchaq
10. Question: How
lls those of the Gene
Amer: These sho
occurs, when they be
agency performs or r
fund would reflect am
an accrued expenditui
agency (say,’GS-Q) c
contractor), its rev013
on the contractor’s pe
at the same time bns
ordering agency ; the i
at the same time, reci
11. Qzreatkm: How
treabd?
Amer: These shc
penditures, until perf
sofidated working fw
the c3 P endar mont-h in
.. . .
• . hmrx B
has not et been paid for wid for travel performed that will be funded out of Kvances for which vouchers have not yet been presented. In many c a q therefore, on an item such as tmvel, cumulative nccrued expenditures wittun 8 fiscai year will represent o reasonable estimate for the most recent period and fairly firm “actual” figures for the preceding portion of theyear.
• . 8. Quath: This same principle is applicable to other types of transactions such as communication servicea and utility services. What procedure should be followed where the billin cycle of the payee does not dered 12 times o year, but the billing period does not correspond to calendar months. r i d that do not correa ond with the calendar month with the accru$expenditureS for a similar obligation transaction is recorded, and where neither the differences in the month’s transactions nor in the amounts of the liabilities %re lielp to be material. (Note, however, that this practice is not permitted for pemnal services; the accrual mctice must cover the earnings throygh the end of themonth.) However, i! th e accrued liability for communication 3nd utility services performed for the portion of the month between the end of the billing period and month-end is material, provision shonld be made for recordmg it os an obligation, an accrued expenditure, and an applied cost.
9. Queath: With regard to transportation which is incomplete at the end of a month, when should the accrual be reported 1 This question is applicable to both passen er and freight transportation. expenditure in the accounting period in which it begins. If the amount of unperformed trans ortation is not likely to be material, the accrual might even be recordecfwhen the bill of lading is issued or the transportation request is exchanged for tickets.
10. Qicesth: How should we trest advances to revolving funds, sucli ps those of the General Services Administration?
A w e r ; These should be accounted for BS advances until performance Occurs, when they become Bccpued expenditures. When the performing agency performs or makes delivery to the orderipg agency, its revolving fund would reflect accrued revenues and the ordenng agency m-onltl refiect an accrued expenditure of the same amount. In those cases where the other agency (my, GSA) cuntzrrots with an outsider (for example, a building contractor), its revolving fund would reflect accryed expenditures bawl on the contractor’s performance, and accm& recelpts of an qilill :rirmiot. at the same time based on the “sale” of the semces or material to the ordering agency; the ordering a ncy would reflect an accriied espcnditmi* st the same time, reciprocal to iY SA’S accrued revenues.
11. Question: How should advances to coiisolidated working friiirls be trestedrl A-er; These should also be treated as advances, not as accrued ex-@dhms, until performance occurs. The agency administering the conmhdated working fund should treat the amounts as deferred income and
- -
cormpond to cnlendar months? Ifany telep a one and utility bills are renthe
c8 P endar month in which the billing period ends, in those cues where
Awwer; It is permissible to equate monthly billing
&.mer: It is prefers% l e to record the transportation as an accrued
. --- . 51
. - , . . _ _... ~ . -. . . ., ~I
January on the bnsis of the estimated value of performance may be paid in March at a different amount, on the basis of the invoice received and/or adjustments made during the examination of that inFoice. Should the January figures be restated? i !
i
15. Qwtion: We
accruals only on a q
stantial nmber of it
Alrswer: No. It is.
estimating methods n
account of all factor
more accurate inform
primarily when ind?
si@ant, it is imp
flection of the transa
rating of estimates OF
or off the $elf, dm
to a carrier, or at th
An820w: Technics
. livery to the carrier,
United States. Tf, ins
occurs when deliverg
circumstance is not tl
mercial bill of lading
is, did it call for the
eve!, as a practical r
dunn the year (for
ceiv J by the agency.
17. Qscestim: Sup
contracts severd por
part of the work to bc
arrangements that TT
terms of getting tin
contractors?
AWW~TI:h many
reporting chain to tf
accrued expenditure:
amounts earned, whe
able in detail in the
A possible test is thi
month, how much wo
by the contractor anc
costs relating to term
Amer: It is not
under these circumd
16. &ue8tk?n .’ &t j l
18. @-98t&??%:
CoSh under 8 firm fk
19. &uesciOn: our
tracts (for example, i
.. . - . . i . . . ..
APmtmX B
15. Qtestian: W e had set u our Ians on the basis of making certain accruals only on (L quarterly task. k o d d this be acceptabIe for 8 substantid number of items which are individudIy relatively small? B w w : No. It is necessary to record an accrual each month However, estimating methods mi ht appmpriately b~ used in some situations, taking munt of dl factorskown to be relevant, and subject to correction as more qcurata information becomes available. Such shortcuts am applicable @manly wbep plividual items am relatively smaIl. Where amounts am srgaificant, it IS unportant that the reported ac~ruirlsb e a sensitive mhtion of the transactions actually hap enin and a predetarm.bed prorsting of estimateso ver consecutive man$ wifusua~yno t be Sstmfactary. Amyer: In many cases it will not be feasible to ec.tblissh a monthly reportmg chain to the last possible level of subcontractors. However, the llccrned expenditures reported should re resent the best estimate of the amaunts earned, whether or not they are Lown specifically and supportab10 in detail in the prime contractor’s books at the end of the month. A M b I e test is this: If the contract were terminated at the end of the month, how much would the Government owe for work already performed by the contractor and all subcontractors, aside from penalties and cleanup oasts relating to termination 0 18. Questim: Can the Government require a contractor to report his costs under a firm fixed price contract ?
A w e r : It is not necessary to ask the contractor to report hi costa uder these circumstances. The information neecled for our accrual a* counting is the contractor’s earnings, not his costs; the Government can a propnately ask him to report his earnings, based upon .the percentage IS spec cally to meet requirements of the Government and at the Government’s direction.
19. Qtlestiolt: Our experience indicates that on certain Qpes of contrsCts
(for example, those with renegotiation provisions), contractors en9P corni i Ietion of the contract, on those contracts where lus performance AewNDrx B eralIy claim more earnin than the amounts for which settlement is ultima.taly resched. Shod r we recognize the total amounts claimed each month as an accrued expenditure?
Amwep: The agency may appropriately utilize its experience to establish an aUowance (a reduction in the accrued ex enditures) for escessive to operate this allowance (like valuation a1 P owances on assets) in relation to a grou of contracts rather than to seek to identify &an amount to be discount eB on each individual contract.
20: Question: Are me to rely basically on how a cost-type contractor records a transaction-that is, treat his current earnings 11s an accrued expenditure if he records revenue, but do not do so if he doesn’t? Amwer: No, not with outside contractors. The Government’s treatment of a transaction is not dependent on whether the contractor picks up the transaction as revenue each month or leaves it 11s work in progress in his accounts until the job is completed. The agency must accrue the espenditure on the basis of contractor performance in the case of contracts which require his performance to the Government’s order, as distinguished from cases where the contractor holds himself out as selling the product genernlly. Agent procedures should rovide methods of determining the sented by t.hat performance month by month.
21. Qztesth: In the case of construction jobs does the Government have an accrued expenditure for material brought to the site but not yet put in place?
Ans27er: The tim’ of the accrued expenditure depends upon the terms of the contract%here tlie contractor is deemed to earn a portion of the contract price only as work is put in place, the accrued expenditure must be recorded accordingly. Where the contractor’s performance and earnings include the delivery to the site of certain materials which the contractor then “appropriates” to the job, the accrued espendi’ture should properly include the price of such materials.
22. Qtterrtion: We use the letter-of-credit procedure for man grants.
Amzoer: Neither the issuance of the letter of credit nor the disbursement on a letter of credit can be counted as an accrnal. The letter-of-credit device is a means of handling payments, not a means of handling accruals.
23. Qltestiant If advances for grants are handled on a “poled” basis by the grantee, how should the accrued expenditures be distributed to the f‘uncling accounts 8 Answer: This question relates more to the theory of pooling than it does to accrued expenditures. However, with a poo1ed arrangement it is necessary to determine the costs ultimately chargeable to the various fnndbg appropriations. Since costs and accrued expenditures are likely to be concurrent in the case of grants in cash, the principles adopted for cost application can probably be applied equally well to the distribution of accrued expenditures.
24. &uestion: W e make some grants and loans in kind-through current
purcliases. When should the accrual be reported!
54 -
claims that mill likely not be paid. It will roba % ly be more satisfactory performance t 3: at has occurred and t E e portion of the purchase price repre-Can rre count the disbursements on letters of credits as accrua 9 S?
Anezoer: If the pt
or contract, the idtit
be recogpized, even t
transaction. In such
ture when tfie vend0
were making dclii-er
from antsor lom~
accrufdepnds pri
ourselves and the otl
Lurm ch tahseer U onf itae dm rSntrt
Falstionship betyeen
formmce by the thi1
26. &wtiolz: ]Po
A m w : It shodt
t pto the Sk&’i
categorical grant” 1
grant. However, a pc
t of $5o,OOo to c
E ‘ k o u e c for agr
ation in ‘FF ch thss
.of need, anp submm
sccountabihty, or ar
cases of this type B
financial support, ar
be recorded on the bt
26. Question: Ho.
States or local govt
12% percent of graz
boundaries) 8
Ansroer: The met1
the rules are genera
revenues there is nc
required from the I
of the mone In thc
basis of cast disbui
course, the accrual w
27. Question: We
in going to school. I5
ing out the accrual cc
Amer: None. It
certaining that the i
pmcticable to carry
rn cases such as this
applicable, there wo
accrued expenditure
the month for whic
sdvnnce account, bu
performSnce0
- . . , , .*. . ,.*_ .- . . . . - . . . . . :. . .
Amow: If the puiehnse is mnde on the Government’s u& order
or contract, the rehitionship between the Government and t R at party must
be reCo,?lizecl, even though mother party is a rantee or borrower in the
transaction. In such cases, the accrual should e reported as an expenditure
when the vendor or contractor performs, in the same manner as if he
mere making delivery to the agency directly. These cases therefore difFer
from pants or loam which are made in cash, in which the timin of the
amwl depends primarily upan tbe status of the transaction &tween
ourselves and the other pa However if the grantee or borrower is th0
kurmchta hseer Uonf itae dC oSmtamteosc ltltoy% theo mth iard t hisrhrt yp,a trhtye, aacncdru aals siisg nbsa sheids uppaoynm tehn0t
relationship between the a r yan d &e grantee or borrower, and the performance by the third pa is not relevant.
23. &wetion.- How should we h d l e grants which do not require Amwe?: It should be noted that the number of domestic rants of this tpe to the ststes, counties, an~lc ities is especially small.%early every rformance as the basis for the grant. However, a possible example to conp o“ mt o the question is the annual t of $5O,OOO to each State and to the Commonwealth of Puerto Rico E & e y for agriculture and the mechanic arts”-a program appropriahon in w ich the specified amount is aid without any specific showing .of need, an7 submission of a plan for t R e use of the money, an separate accountability, or an reporting on horn the money was used. n the rare c~ses of this type w K ere the payment is clearly gratuitous for general h n c i a l support, and unconditional in nature, the accrual may properly be recorded on the bnsis of cash disbursements.
26. Q2sesh: How should we handle the sharing of revenues with States or local governments (for example, the return to the States of 1% percent of grazing fee receipts on certain Federal Iands within their boundaries) 1 AnazcreT: The method of handling these depends upon the law, although the rules are generally the same as for grants. In most cases of shared revenues there is no requirement as to performance and no showing is required from the recipient, either before or afterwards, as to its use of the mone In these cases the accrual may properly be recorded on the bssis of cas g. disbursements. If some performance IS required then, of cmme, the accrual will be b dup on such performance.
27. @uestion: We give monthly stipends to individuals to msist them
$ going to school. What evidence of “performance” is necessary for carry-“lg out the accrual concept?
Anszoer: None. It is assumed that the agency has some method of ascertaining
that the individual is attending school, but it would not seem
practicable to carry the accrual concept to any special degree of precision
121 cases such as this. If the stipend is given in the month for which it is
applicable, there would be no objection to treating the disbursement and
=rued expenditure as concurrent. If the stipend is given in advance of
the month for which it is applicable, it would be desirable toset up an
advance account, but there would be no objection to liquidating the ad-
55
perfOITlWC09
categorical grant” requires some type of
P
k N D I X B
vana account en 6loc for the month without demanding individual performance reports as a condition for doing so.
requiremeilk slioould not be
of the tutd lot.
(b) If no reasonable number of pa eea account for a predominant part of the total payments, statistical sarnp%n@echniques might be consrderedthat is, monthly performance reports might be obtained from a lirnitei number of the ayees, rovided that the size and nature of the sample is rrppmpriatelJr &am. on the samphg eriodically, since no one period of the year is necesssrxy indicand since too infrequent sample reporting might cause estimated results to fail to reflect new developing trends.
An o. ency might choose to use one alternative for some programs, the methods of dealing with the problem su ject to obtaining the approvals mentioned above.
29. &wetion ; We must pa interest semiannually on certain borrowings the due daw?
Ammrt Interest should be accrued ~9 it is earned, month by month, and not merely at Bemiannual or other periodic intervals Then it becomes due to lenders or is credited to depositors’ accounts.
30. Qwtion: The Post Office sells stamps and obtains revenue from setting postage meters somewhat in advance of performance. Is it nepssay to recognize 8 distinction betmeen accrued revenues and cash receipts in suchcsses3 Anme?-: To the extent that an agency obtains receipts in advance of performance, and the unearned balance of such advance cqllections is material, it should ,be recognized as deferred income until it is earned; In casea of this type it is common to expect that 8 portion of the receipta 56 such cases it will be necessary to car
ativa of t E e levels or volumes of .activity in the remainder of the year,
other afi mnative
(or on moneys deposited wit i us). Is it permissible to accrue this only on
for others. An Rgencg might also select still other
.
collected will never I
lists, I&, eh, just as
bus tokens it sells w
accrued revenves, ra
current collections m
the Government.
31. Qtleeth: Are
cation of these rules u
dmmer: No. The
appropriation or fur
arately for each acc
relative size,
32. &u.estdon: Son
ently combine rogra
to gettingthe hanci.
program statistics a1
dnmaer: No. A co:
on performance is oi
effort is to obtain tir
m e for urn + the I
strued as minimizin
oilices rather t R an th
separate them from B
. . . :. . .- . - . . . . . . .
collected will never require performnnc4-stnmps mill be kept by philate-~ __ - &rued revenues, rat@ than as unearned %en&, the portion of the current collections mhch it is expected will never require performance by the Government.
31. Omtion: Am some Federal apencies small enoueh to avoid SDDEappropriation or fund symbol. The Gncept of materisfity-is applied septuately for each accounting entity and therefore differs according to Felstivesize.
32. Quation: Some of our reports from contractors and grantees presto getting the financial data to thz accounting sttff, a b youkuggesting that program statistics and financial data be separated into different reports? Ansure?: Xo. 9 combination of program statistics and financial re orts OIL performance is often desirable. While the immediate emphasis o P this effort is to obtain timely and accurate information on financial ante for use in the accounts and reports, nothing herein shod be construed as minimizin the usefulness of program statistics or ae seeking to separate them from a nancial data.
aerfom-
57
To HEADSOF G o m
CONCETLYED : -
1. Purpose. This Trr
reporting to the Treas
capability and ppogres
the President’s Commi
expenditures be stated
‘the framework establi,
and the concepts and
cable. Based on the es
will be incorporated ir
. . 2. Accrual Datu in
results n-arrant adopti
the Treasury \Till iiite
syshn. -4s background
randurn, there follows
.system and the n-ay in
The present central
bracing all of the Go
Treasury, as a financi
transactions that are cl
ceiwd and money disbi
(a) throumh the lid
. the United %ates, thi
Treasury and outside
liabilities for cliecks ou
(b) through the lir
agencies, the amounts
budget., and the liabili
deposit funds.
rThc term “necnral bade’
I*dndt distincttons between
am essential for accrual nceoi
r
APPEXDICX
i
hPENDIx C
Coardinats with the
link established t h u
and funds are assembled to disclose the undis ursed balance of every appropriation and fund. The undisbursed (credit) balance for each appropriation and fund on tho central books is reciprocal to the asset balance for each appropriation and fund on every agency’s books representing its The present system described is an indispensable foundation for whatever step in the chain of hiancia1 events is defined as representi revenue and an expenditure for the pur se of measuring budget res ts. When vdid data on accrued revenues an 8” expenditures are generally avdable from encies, and on a basis t.h& is sufficiently timely, the central systelm wili% extended to the accrual hsis by building on this existing foundskion. This will be done by (a) combining net disbursements (which. are to continue to be reported for individual a proprintions and funds) with related balances of the “brid vances and pre ayments) and Por’ lia bilities (parables and unearned be reported €or each receipt account) with re at balances of the “brid e” scconnta for ,assets (receivables) and liabilities (accounts payable). tor example :
ing, and with the additional Treasury-agency
issuance of :ipproprint.ion warrants by the
Bureau of Accounts, affectin% individual appropriations suthoriq to draw on the Treasury.
% a
accounts 4 or wets (receivables, adrevenues)
; and ( \ ) combining net cash recei ts which am to continue to
r e l i
N-+-e tBBB caaaalllsaaahnnn mccceee oooi ffP taaasppp p(pprllleiiiccccaaaebbbipllleeet a alacissascseboettiu l ainatcctycsc o)oa ucuncntost,su ,nb etesng,d ie nonnfdi npogef ropiofe dpr ieordio d + .Bdanm of applicable Iisbility accounts, beginnmg of period
= Xet ~ . C C Nre~v enues (receipt accounts)
Net disbursemsnts (appropriation and fund accounts)
t Balance of apphcable liability accounts, end of period +-- BBBaaaIllaaannmcceae ooofff aaappppppllliiicccaaabbbllleee aa slsissaeebtt i aalicctccyoo uuancncttsso,, u ebnnetdgs, i onbfn eipgnei nrinooifdn pge orifo dp eriod
At the appropriate time in the futuret consideration will be ven to the reporting of accrued revenues and expenditures, by appropriation, fund snd receipt account (without havin to report cash receipts and disbursements at those individual account f evels), provided, of course, that tllis hss Iegal sanction.
8. Fonn of Monthly Report. The monthly report formats prescribed
are illustrated in Attachments “A” and “B,’ to khu transmittal letter. Attachment
“Ayd’a h with the prepantion of reports relating to ap ropriaeach
head of appropriation or fund (without fiscal year designation for
annual or no-year accounts). Attachment “By’ill ustrates the report relating
to ts (Form BA-6728) and is general1 to be: (1) at the a gregab
level P or each major class of general fun B receipt sccounts; f2) a
single report for all special fund receipt accounts combined; and (3) a
80
= Net sccrued expenditures (appropriation 8nd a nd accounts)
fessibility and desirability of modifying the overall system $ or a direct
tiom and funds (Form BA-6727) and is to be at the aggremte P eve1 for
single report for all t
anagenc maybe@
of an in&idual acco
year-end re rtsmaj
These monthly repc
the Headquarters leva
with the monthly stat
and similar report fo
reau of Acc~unts frc
agency.
In addition to pro1
nues and expenditure:
reporting Tte, the
of accrual ata in
accounts of 0:
luremr o9 th e United Si
that they be discipli1
of key general ledger :
The balances requi
Bureau of Accounts
reviewed in the futur
practicable. For ma1
to appropriations ani
present year-end rep0
offs, transfers to ‘‘JI’’
4. T i d y of Rep
ports will be due in
ness day after the 24
preceding month. If
as a whole are to be c
the Pwident’s Corn
approsimately as tim
receipts and disburse
bility that is substa:
The report due AI
a pretiminury report
starting point for cc
the “actual” year in
on the accrual basis-
30 closing balances
September 25th. The
ing with the report
cular No. 965, will .
October unless an a;
theretofore reported
symbol lev0 YO for app
. .
, .
~.
. -
. . . ...... A _ - >. _.-
:..._..__. - .
• . I
single report for all trust fund receipt accounts combined, In some cases
• WJ may be specifically requested to report at the aggregate level of an m vidual account symbol. In addition, it is anticipated that final p a d re rts may eventuslly be required at the individual account spbo1 levrfor appropriations, funds and receipt accounts. These monthly reports (to be received by the Bureau of Accounts from the Headqusrters level of the agency must be systematically coordinate snd similar report forms) which will continue to be received by the Bureau of Amunts from the established accounting station levels of the ww* In addition to providing the data needed for integrating accrued ~ V B - mes and expenditures into the Treasury’s central accounting and financial reporting system, the reporting forms are designed to provide disclosuret of accrual data in tion within agenc ScCoUnting s stem. This is an to the same E d of central controls as cash transactions (throu h the interloday acwunts of operatino apcies, accountable officers an 8 the Treasurer o the United Stat-& tied to actual cash balances) it is essentisl th& they be disciplined through disclosure of the balanced interrelation of key general ledger account balances. rted to the Bureau of Accounts at various times for other purposes. !&sI will be maviewed in the future in order to eliminate any overlapping to the extent practicable. For exam le, it is anticipated that the new report relating to appropriations and P unds can be modified to also meet the needs of the present year-end report on Form BA-2108 (concerning restorations, writeofcs, transfers to “Jl” accounts, etc.) .
B Thing of Reports. For the fiscal 1969 test operation, the new reports will be due in the Bureau of Accounts no later than the first business day after the 24th of the month, covering the closing balances of the preceding month. If the Treasury’s monthly reports for the Government 88 a whole are to be converted to the accrual basis, and if asi envisioned by the President’s Commission on Budget Concepts such reports are to be approrimately as timely as those presentl.7 published on the basis of cash receipts and disbursemeiits, agencies must strive toward a reporting capability that is substantidly earlier than the due date for the test year.
The report due August 26,1968 for July 1968 will be accompanied by
a preZimim?y report of balances as of June 30,1968 (which will be the
Starting point for compiling accrued expenditures for &aI year 1969,
the “actual” year in the first Budget presently planned to be submitted
On the rrccrual basi-the 1971 Budget). A further updated report of June
30 closing balances mill also accompany the regular August report on
%#ember 25th. The final updated report of June 30,1968 balances, a p - hZ with the report submitted on BA-2108 pursuant to Treasury Circular
No. 965, will be submitted with the regular September report in
Wber unless an agency needs additional time to pick up balances not
theretofore reported on BA-2108 (such as balances representing unbi1Ied
61
with the monthly &&menta of cash- A asis transactions (SF 224, SF 1220
essentisl as t ofT t ese requirements. Be cause accrua9 s am not subject
The baIances r e q u i d on the two forms are presently re
• performance on contracts or gqnts) . The Se tember 30,1968 deadline for June 30 balances mil1 be will be detersubmitting
BAL-2108m ust be met, eyen if t1 e ha1 balances reported on
forma BA-6727 will differ therefrom.
date. The timing
5. 8Ubnti.wh of nrOnthJy Re o r k The oriainrrl of each monthly report, Form BA-6727 .and Form 5+4-6728, m i l l h signed by B responsible official, dated and transmitted by the headquarters level of each agency directly to:
Division of Central Achunts & Reports
Bureau of Accounts, Treasury Department
Annex No. I, Room 444
Washington, D.C. 20226
6. Reproduction of Fmm. Several copies of the reporting forms are being furnished with this transmittal. Agencies am requested to reproduce &pies to meet their reporting needs during the test period. Since some modifimtion of these forms may occur as the test p m d s , agencies should limit the qunntity of forms reproduced.
7. System Readiness. So that the Treasury, Bureau of the Budget and General Accounting Office can assess Government-wide progress toward the capability essential for converting the Budget to the accrual basis, it is imperative tbat the new reports be submitted even if incompiete, and that a positive indication be inserted in the appropriate money colnmn for every general ledger account line as follows :
(1) The montli-end balance (or the word %era” if it ha pens to have of full disclosure of that account in the full sense implicit in “accrued expenditures and accrued revenues.”
(2) The same as (1) above, but with 8 suffix “P” if the system’s posturn is only partial and the amounts reported are not all inchsive for that particular account.
(3) The letters W.R.,” connoting no readiness, if the system has not yet reached the status of encompassing the particular general ledger account clnssification.
(4) The letters “N.A.,‘? cnnnotina “not applicable,” if the particular general ledger account happens to 6e not germane to the agency. Agencies are encouraged to malie full use of footnotes or other commentary to fiirther describe the data being reported (or omitted, where the su5x “P” is used) and to identifg problems encountered.
8. Quality of Data. It is nriomntic that reported data (I) should have a high degree of accuracy and (2) S ~ O L IbIe~ s upported by the agency’s accounting system.. In Fertsin complex situations, reporting deadlines may quire use of esttlmntmg techniqnes by the reporting agency. Bureau of
62
B zero bslance) if the agency’s accoimting system has reac i! ed the statns
. ._ J
-.. .
Budget Bulletin N
gobjet to the criterion a to be reported. In
puticdsr attention mu
ind au?&i&y.
In terms of credibilit
q r t s should not difff
4 nu extent that dc
• Its =ported. This
• BlclsIved by the differ
us& of Receipts and E
July) and the Final St
30 (present1 published
differences 1
b e e n the two, on thc
rrlimintuy ear-end E
bid pear-en B balances
Interim monthly. rei
rigomas purification as
s post-closing basis) ar
aat ordinarily come to
IS is nonetheless esseni
dection of underlying
kveh of mvenues and
wmr. This follows frc
Commission for mesu
S a guide to overall Fed
9- 0th. Informal cc
b solicited with respect
bgs will be held with
mhange information 8
the Bwau of BCCOUIII
mend have Le n h a l b &tabtzaitsa SpuI b ished are eel
ington, D.C. 2W26 (Te
1H).
63
.. -. -.
• I
...
..
.. This attachment deal
Qf Selected Balances f
Appropriation and Fu
, lhm item description oJ
k& level of reported d
mcs; (2) an illustrn
p19u6s8d f*omr B% stnriedrbds :f ur,
~ EXZZANATIONOF
. ..
There will be show
md Bureau, or Agenc
&e accounting month;
Annual or multiple y
rsported at the level o md Mi symbol, wit
h f e r appropriatior
thspendingagenc .T
tko hea 4E gs of the-g
a.cclmlt mill inclu d e tl:
k & O m M 1&2
S ~ O S
A-Bala
betw
L Accounts RecGivai
operations (acerued in
re% for losses, return!
&IS to customers for g ths period whether or
Agencies reporting cnsf
t#sis on monthly stater
. and unconfirmed
had balance with TE
nport on BA-6727 and
msF224 and SF 1220)
SIB of p a s ma SI
AppENDrx C
AITACHXWFA
TFRX Transmittal Letter #18
This attachment deals with the preparation of Form BA-6727 %eport
of Selected Balances for Stating Bud t Results on the Accrual Basis,
Appropriation agd Fund -4ccounts.” R e illustration consists of (1) a
line item description of the re orting form with commentary concermn
MISS; (2) an illustrative general ledger trial balance as of July 31,
1968 for a neral fund appropriation; and (3) a Form BA-6727 prepdfmnt&
strial balance,
the level of reported data an Ep the inclusion or exclusion of account baf
EXXUNATIOONF 1- To BE R ~ R ~OEN FDO RMBA -6727
HIZADLYG OF mBX
There will be shown in the spaces provided: (1) The De artment
the acconnting month; and (3) the appropriation head or Bnd symbol.
h u a l or multiple year appropriations and no-year accounts will be
reported at the level of nppropnrttion head, i.e., the Department prefix
and 4-di ‘t symbol, without fiscal year designation. This 1s illustrated in
Transfer appropriation accounts will be re orted on Form SA-6727.b~
vunt will i n c l d the prefix of the spendhe agency, e.g., 1+20X1500 w?f b shown 1&20 1500, A dngle cahsolidated mprt will be submrtted
for each appropriation or fund account within the unified budget, exapt Wipt clearing accountr (e, I E’0101) end budget clesdng,M-~aatttd e,lt;, E8878) which RIB exc&hed from theae ~e rtin rsqulmocsounb on monthly Satements df cash transactiolis wil$ouffim.
Smox I-B~NCEBAS OF MONTH-END
A-Balances of accounts forming the bridge
between %et cash disbursements” and
“net accrued expenditures”
1. Acctxmta Rcctiva8te. This includes accounts receivable arising from d e 8 of goods and services md other receivables arising from current OPerStions (accrued interest, accrued rent, etc.), net of valuation allowfor losses, returns, refunds, etc. It should cover a11 amounts chargeable to customers for goods delivered or work performed to order dunng the pe$d whether or not billed. It does not include Ioans receivable. “&ncm reporting cnsh collections to the Treasury on a confirmed deposit b,m on monthly statement3 of transactions will show undeposited collechm and unconfirmed deposits in transit as accounts receivable so that h dba lance with Tre~snry( line IB1) mill serve as a link between the rePo& on BA-6727 and the monthly statement of cash transactions (such @F224andSF1220).
65 md Bureau, or Agency, and marl address of the reportin o P ce; (2) the hea CEfi gs of the’general ledger trial balanca and the report form. the spending agenc The Rppropriation hea s for a transfer appropriation ments. 6u rm the test period the tremactions p rted 4er “ f (Since the agency in our iUustration re rte collectio~o~n ~th e basis of confirmed deposita we have reporte%othe balance of the deposita fn transit account as L6Accounrtse ceivable from the public.” Out entry to recodthe deposit in transit resulted in a reduction of accounts receivable, in our trial balance., homever the fund bnlance with Treasury will not be increased nntd the deposit is confirmed).
2. Aduaness and Pmpuymnh. The key to proper clmsi&ation for this itan is the conce t that ayments in advance of perforname are never to be considerea acctrue! e xpenditures Such advances, whether to outsiders such as grantees and contracton or to other US. Government agencies and funds, do not become expenditurea until earned by the payee. Prepdd expense, deferred chargea and similar generic account categories may or may not be reportable hereunder depending: upon whether performance has -& For example, among sccounts commonl classrfied the insurance compan whereas inventories of supplies are-never reprtable as pre ayrnenb &t are reportable as accrued experichtum 8s soon ICS recei vre!d om suppliers.
Advances and repayments to the ubEc will be identified as relating key areas where extensive accounting system developmeqt is underwny so thrrt a better sssessment of Government-wide reporhmg capability canbemade.
(In our ilhtrative trial balance the pre aid expense account represents prepaid rent and WAS included on &e line for prepayments relathg to the public. The ‘deferred charges account, representing an !expenditure for repairs to equipment, was reported as an accrued expenditnre in Section II! Tb asset account was established merely to rtllocata the repairs expense over the periods benefitting. Analysis of the “Advrances to Othed7 account revealed a $400 advance to n grantee and advance phyments of $200 to contractors). 3. Accounts Payable. Includes ECCOU~~pSa yable established bn the basis of invoices and/or evidence of receipt of goods and services and accfued liabilities for dnries, interest, rent, etc. It should also include the unbilled costs of contractors and grantees under the constrnctive delivery concept. Tlie accrued annual leave liability will be included only when funded (R S is iisually the c8s~w ith revolvmg funds). A cics which reduce accounts pnpble on the basis of vouchers scheduled% payment mill report vouchers 111 transit to the disbursin office (‘gdisbursements in transW be on 8 paid vouclwr basis, thus serving as o link betmeen t is report and monthly statemonta of cash transactions.
(In our illustration the balance of “Disbursements in T.ransit” mas reported as an account payable. The entry to record the Dubursement in Transit reduced accounts pa able, in our trial bnlance, but reducor paid voucher.)
4. Unenmd Revenge. Include those liability accounts r e p m h g
tlio bahice of unearned advances received from others. If the advanca 1s
as prepaid ex ,m espired insurance premiums me reprta$ l e as repayments
an 8“be“c ome accrued eqenditnres ody asathey are earn$,
(4 grants, (by contracts or © a B other. This breakdown highlights
ns accounts payable so that “Fund bg ipa nce with Treasury” 6lin e IB1) will
tion of the fund balance with I mmry is awaiting an accomplished
fiani anotlie~G oivmll
ilia iissct on its boolts.
accrued euptylituw I
counting period.
5. Subtotal, relatin
reflected on lints 18,
!dances) all of wlucl
6. Subtotal, relatin
total of amounts refh
(credit balances) all (
B-
1. Fund bdance zc
for disbursement and
trnl boob of the-Trea
report and monthly st
in tho balance repodc
reporting on the stat
on the ngency’s book
should not be reflectt
(3) investments in Fe
3. Antkipated rein
tomer orders on hand
rent b lye nr. Althc
to be realized durin5
rnent, allotment an
amounts actually real
stated in Section 13 c
not applicable to uk
revolving funds 6.e.
snticipated reirnbum
4 UmbEigatedbuci
and loan authority of
5. UdEivmed ord
services d c h have
’ similar obliptio.ns,ou
mental Appropnauor
2. BQi?ames of Othl
unused borrowiqg au
The total debits (A
(A5 f A6 + B4 and i
SECrION II-TlLrtNSA
A-
1. Expmditttres. R
cWined in hreau of
66
, . ._. .. , .... _^c .. . - . -. .. .
APPENDIX c
ing from such thiugs as overpayments or purcliase returns. (For purposes of this report it also includes loan disbursemeiits as defined in Transmittal Letter h’o. 13 of the Treasury Fiscal Requirements JLhml for rcporting 011 monthly statements of transactions.) The nmouiit to be reported will normally be available in lr single account such ns “Espcnded Appropriation (Accrual Basis) .’: If not it can be derived directly from accounts containing charges for current operating expenses, acquisition of capital assets, additions to inventory and program outlays.
2. Revenues. The term “Bevenues” is defined in Burcnu of the Budget Bdletin Xo. G8-10 to cover credits earned by all types of funds, including appropriation reimbursements, and is used in that sense for this report.
(For puipses of this report it also includes loan repuyments.) The mount
to be reported is tlie total earned revenue available for obligation without
appropriation action, including where applicable current operating income,
proceeds from the sal0 of fixed assets ttnd repayment of loan
3. Net expenditures. This represents the balance of expenditures less
• revenues. A minus figure should be denoted by a credit symbol (CR) .
The aniount of net espenditures shown in block IL13 should equal the aggregate of net disbursements reported 011 niontlily statements of tmnsactions, plus any increase in accounts pyable and decrease in accounts . receivable (as measured by the difference between lines IA5 and 6 on this month’s and the same lines on last month’s report).
B-Analysis of account for undelivered orders
principal. - .
Ackunb
Allowanc
Aceoun@
agencu
Loans re’
Inventor
Pkpaid
Trsvd ai
Advance
Advance
Deferred
Equipme
Accumul
Liabilities:
Disburse
1 Accounts
Accounb
Accrued
Accrued
Advance
Advance
Lability
Investment o
Unappor
Unallott 1 Unoblige
Undelive
Expende
Estimate
Reimbur
Invested
Income and I
. Income-
Expense.
Total-
This analysis is in the form of an equation establisliing a relationship between expenditures reported in IIA1 and tlie balances of budgetary accounts reported in Section I.
Balance of + or -+ AOdbjliugsatmtioennst sUi ntnocdu etrhlriievsde br teahdlia s‘n Ohcerd elrsy Jeu alry 1 (from prior years) - Balance of undelivered orders this date
= Expenditures fiscal year to date
&Analysis of accouiit for anticipated reimbursements This analysis is in the form of an equation establishin n relationship between revenues reported in IIA2 and the balances of bu&etary accounts reprkd in Section I.
Balance of anticipated reimbursements July 1 (from prior years)
• New orders received or estimated to be received this &XI
• Balances of anticipated reimbursements this date
= Revenlies h a 1 year to date
• or - Adjustments to this balazce
Ye=
68
GE.! ;
APPROPRIATION
1010
lOZ0
1110
1111
1120
1200
1300
1-400~ ~ .
1510
1520
1530
ls00
1710
1711
2010
2110
2120
2210
2220
2310
2320
2410
3010
3020
3030
3040
3_050. ~_
3060
3070
3080
4000
5000
beta:
Fund bal
DeDosits
-. . .. ..:
. 1010
. ..—lorn
1110
• 1111
1Iu)
1200
1300
1400
1510
1520
1530
Is00
1710
1711
2010
2110
2120
2210
2220
23 IO
2320
2410
30IO
3020
3030
3040
3050
3080
3070
3080
4ooo
5ooo
AS OF JULY 31, 1668
(ILLUSTRATIVE)
Aecoant Ti& 1 Debitr
69
I -
Llne
Code
, .
&bit Credit
Ealrncrr I Llaneer
.-
I - LImcu of hdrctsn Accmntl:
1. Rad h l i e u witb m u m ...........................
2. h h e s of oCCcr sutborizatlom .....................
1. r a t i c r p t d reidmncmts (See IIC) ...’......... .....
1. unobllmtcd W e t ruthorlty .........................
5. Uod.li58rcd O*I3 (see XIB) .........................
AmNDEx c
M A u-mr
#twlair mt c n t d -tr
m bmru
REPORT OF SELECTEU BALANCBS FOR STATING
BUOGET RESULTS ON THE ACCRI!AI. BASIS
APPROPRIATION AND YUNn ACCOUNTS
301
302
303
304
30s
: . ruui *tim I (e, + M BI t b N si .................... 499 39.990
I hlaer8 d koaats Famiup the Rridge Oct-
‘YS8t W Gsk-u” St ‘ W r t kcnd
tpodimrrr”
1. rrcclnbf*:
(a) Cm th. PiblIC ................................ 101
(b} -mu. S. GoI.zllmcnt IscIYtEs ................. ZOOL
2. ld- sad pnPJmtr 01):
(a) h . D L 8 (to tb. public) ......................... IO2
(E) A l l other it-:
(0 ePLLmta (*lib tb. public) .................... 103
(1) &latins tn the prbllc .................... 101 rz) Irht14 to u. S. tinmrmcnt a~~exi.m.. .. ZM
1. a Um n b h (includinc furrdcd ucrued
1lJbllrtin) :
(8) Icl8tiJU Lo the PibllC ......................... 10s
(b) %latint to U. 8. G o v c m t a m c l e r ..........
(a) R r k t l n t LO the PibIIe .........................
UIS
106
(b) I+htfns to U. 9. OOIcrnraL 81cncles .......... 206
1. Uaarscd meIlmr:
‘ 39.990
. ..7s5 ....................... 230 2,810
im 100 d e 3
(tin cod- ia am r r i r s l
6. -tal. n l d n # to U. S 6m-r .m&r
1. Eipcnditurcs
(501)
A - Il.c PaadIturr8 (kcnul &asis)
2.700
2. kvcnara 3. Net R ~ i ~ l i t l i ~ c s (501) (%n) 7s 2.62s
!-& Lor* Jnls 1 ............... ................. * I 2. AdJlocBNLS .................... rol
1. ordcn rrcrlved or estin~d
4. h.iurca per iinm 183 (-1
................................ 2. Addlastsacs ...
3. oblicnticm irfurred
4. Llrnec p r 1:a IP (-) 1,803 .......
This attachment de
of Selected Balances
General, Special an6
consists of (I) n line
trative copy of Form
for mportrng accrued
EXPLANATI01O N
There will be shox
Bureau, or Ageacyi’a
counting month; and
mi t accounts bein
divi B ual receipt accou
A-Balanc
‘bS:
1. ~ C C O U d RS ~xZ~W
in Attachment “A” a
ceeds are for credit t c
(line B3), rather tho
Iink between this rep
2. Account8 Payat relating to receipt ac plicable to accounts re
3. Subtotal Section
Ala + Alb (debit b
-
B-Balances
1. Governmnt Ep
Represents the net o
the start of business I
the annual. closing oj
balances. For exsmpl
on page 4 of this attac
for the fiscal year, th
would ,be :
Dr. Revenue Acc
Cr. Revenue C
Cr. Governmer
enue, July 1-
. - . - . . . -. . - .. . . . ~ _. - . .* .
2. Revmw A c c d . The term revenues is defined in Bureau of the Budget Bulletin No. 68-10 to corer credits enriied by all types of funds included in the Budget. The full sense of that definition ILS it applies to proceeds for credit to receipt accounts is pertinent, except that for purposes of this report it also includes loan repayments credited to a receipt account. Since this balance is closed each fiscal year (see closing entry described abve for line Bl) amounts reported monthly on Form BA-6728 will represent revenue accrued this fiscal year to data 3.Revew Oolhttd. Reprents collections which have been covered into the Treasury and is reciprocal to the Receipt Account balances on the central books of the Trensury. Only revenue collected a d reported on tlie month@ statements of cuah tmnaactions (on a collection or confirmed deposit basis as applicab1e) will be reflected on this line. As a mmlt of the closing entry described for line B1, the balance reported on this line will represent revenue collected this fiscal year to date.
&Total
Noh
Sice ~LIL aoailablc
sa m receipt on Form
collected &odd be 1
6727, The accraai a~
Form BA-6728 don
eSrrieS*Bamt3@p
SHCe an avdable d p t is hediatdy available for expenditure it
e e ath e ssme Bymbol aa the fund account. However it must be reported
an receipt on Form BA4728. Appropriations ual to available receipts
callected should be reported for the related fun7 Bccount on Form BA-
6797- The accrual and collaction of available receiats will be renortad an
.
:
A - Balances of Account8 ?orsins the
Irldce BrtW*eS “CUh IrerIptS” a d
**Accrued BDTrBUaS.’!
1. Acconnta r*c~lrnblr:
(a) Irom thr pobllc ..............
(b) ?rom U.S. Government acenefas.
(a) To the public ................
(b) TO u.1. aovernment sgancier...
2. Accounta owable:
3- l o b t o t a l . S r C t l o l A ..............
1 - ~ l a n c e so f &Count8 Rrgr*8*ntlPI the Gorernmast’a Lqulty 1% uncollreted e ere mu..:
1. G o T ~ r O ~ ~ n t ’ ~ 4reUprlets~e nted by
. 2. navenur accrued ..................
3. RrTenUr col1ett.d ................
C . Total (A3 + 01. 2 and. 3) .............
rscollectrd r8WDUe. JUIY 1 ......
Submitted by:
Debit
Balaac.r
..........................5..0.. ......
• bin.
• Code
601
701
bO3
7 02
119
I O 1
802
1103
899
Crrdlt
Balances
.............ZQ.. ...
--*----.1---.-----
50
9w
20
..................
• .—e - e -.-? -R- . * .
........................................................................ flWtU1) ftltl.) 4OlCCI
TO HEADS OF DEPA~
The President has
with converting the
Treasury tirhe:to
on Budget Concepts
on this subject is at
Some rgencies hav
for this important c
remains to be done. ’
. mended by the Buds
mates and prior year
next January.
Accordingly, the F
effective with the buc
While sliypnge of
it highlights the need
plete the changes nec
Staff of the three
with the pro r3m ag
its role in andiyzini
economy. Interagenc.
areas, and there wil
rector on these matte
be commilnicnting FR
monthly accrual rep(
The special montl
must be of such statu.
ury to conduct its cei
and extending thrc*y
producing everythin
the accrual basis sho
that basis during tha
“pilot” system (a)
fiscal years 1969 3nd
begin to be published
Economic A d visers a
BPPENDIX D
SECRETOAFR TYHE TREASURY
DIRECTOOFR T HE BEREAUOF THS B ~ Q E T
COM~~TOI.GI~EENRER AOLF THE UNITEDST ATES
CIIAIRMAN OF TIXE CoULVCIL OF ECONOMIC ADVISERS
- .
MmR 10, 1969.
The President has d r m e d the importance bf oing forward pmmptly
TO HEADS OF DE&\mENT6 AND hENCIEB
with converting the budget and the companion %XI ancial reports of the
--
on thiskbject is’ attached.
Some ?pncies have made significant progress in developing 3 readiness for this M rtant change. However, it is now evident that much more remains to c done. Therefore, we cannot achieve the target date recornmended by the Budget Commission to move to the accrual basis for estimates and prior year actual data in the President’s budget to be submitted ncxt January.
Accordin ly, the President has decided that the changeover will be made effective wig the budget for 1972 to be Submitted in January 1971. p i l e slippage of one year from the original goal is R ractical necessity, pIete the changes necessary to meet the new timetable.
Staff of the three central financial agencies are working together-snd
with the pro ram agencies on this vital matter. Moiwver, the Council of
Economic Afvisers also has an important stake in this change becauFe of
role in analyzing the impact of the Federal sector in +e national
• nomy. Interagency study tams have been working on certain and there will be further communications from the Bu get Di-Weir on these matters as necessary. In the near future, the Treasury will WIununicnting with each agency on its compliance with the reqyire:
monthlp accrual reporting under the current fiscal year “test operation.
The special monthly reports presently required on the accrual basis
m u b e of such stature, in substance and tirnelmess, as to enable the TmsnV
to conduct its centra1 operations for the rest of the current fiscal year
and ea~dingth rc-igh fiscal year 1970 as a comprehensive “pilot” system,
dncing everything needed for reporting Governmentwide results on
~
it highlights the need for more vigorow actim nm, in 8 P 1 agencies, to comfpoblem I s - PdOt” system &> wt;al data on accrued Avenues and expenditures for Years 1969 and 1970 which mill be needed Then the financial reports begin to be published on the accrual basis in fiscal 1971 ; and (b) firm yew . :.. . . - . -. . I end balances of the various asset and .liabilit accounts on the books of the agencies’ that represent the bridge between t i e “cash” and “accrual” bases and that am prerequisite to the changeover.
AU of this adds up to a major and challenging undertaking. We urge the head of each agency to see that his organization is ready for the changeovm soon. The specific uirements have already been promul ated m Bureau of the Budget €3 etin No. 6S-10 dated A ril26,1968, f? reasury Fiscsl Requirements Manual Transmittal Letter 0. 18 dated June 20, 1968, and General Accounting Office letter to heads of departments and agencies dated May 4, 1968.
3 R
P
Secretary of the Treasury
Director of the Bureau of the Budget w-
Chairman of the Council of Economic Advisers
Uomptroller General of the United States
Theaccrualbasis(
ap mpriate basis for
1956 accrual acconnti
i d , but one which
A year and a hdf a
Concepts recommend(
Fprtianngdo Tn ud&getr tur
wera sssociated with f
work. Some of the s
• awfittehr tthhee Cbuodmgemti spsiomn
ing the conceptual ch
thek prompt adoptioi
Since that time the
have been worksqg TV
menta and agencies. (
convert to the accrua
porting operation.
I hereby reai3irm 1
reports on the accrua:
Please continue vigo
the United States to
departments and age]
ing this objective at 1 end of this fiscal year.
budget to be transm‘
PI- report to m
made.
an$ operating results
b d t U t 8 0 f &&6d
76