Introduction
The primary purpose of this program is to provide an illustration of
for Federal
accounting should be employed in Federal agencies and programs having
predominantly personal service costs. The answer to this question is
that such basis s R should be employed. This program undertakes to explain
and illustrate practical and simple methods of accounting on the accrual
are for other than
personal services.
The procedures illustrated will satisfy the objectives of law and applimble
Principles and standards relating to accrual accounting and fund
control and will also assist in the attainment of efficient and economical
management. The illustrations and the Principles and procedures
described are intended to be of assistance to Federal agencies in developing
and improving their accounting systems to the point where they ma be
approved by the Comptroller deneral. Primary emphasis is p l a K 011
problem areas; the procedures illustrated do not cover all aspects of an
agency's accounting system.
The principles and standards of accounting contained in part I represent
prescribed requirements. However, the procedures illustrated m part
I1 are not prescribed. They are suggestive of the kind of practical, simplified,
and.acce table procedures that can be applied to accomplish the
by the Congress in law. In this framework, the material is presented
in clarification of the principles, standards, and related requirements for
accounting which have been prescribed by the Comptroller General of the
united States.
Representatives of the General Accounting Office are available to advise
and consult with agency officials and employees on these matters.
simple but acceptable accounting and fund control
agencies, the principal expenditures of which are
The question is sometimes raised as to
basis and fund control for this E ind of The procedures demonstrated,
however, may be adapted in to more complicated
operations where significant
several interrelated objectives of Federal agency accountiv systems stated
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1 agencies an4 programs having
?he answer to this question is
s programundertakes to explain
I& of accounting on the accrual
Ienc The procedures demonmg
&? to more complicateii
expen itures are for other than
the objectives of law and applio
accrual accounting and fund
lent of &cient and economical
ie pfinciples and rocedures
3 Federal agencies in 8 eveloping
;o.the point where they ma be
'rimary emphasis is p l a d 011
do not cover all aspects of an
mg contained in part I represent
procedures illustrated m part
. of the kind of practical, simplibe
applied to accomplish the
gency a m u n t b systems stated
pork, the matenal is presented
Is, and related r uirements for
the Comptroller7 2e neml of the
Officaer e available to advise
loyew on these matters.
Principles ani
PART I
Standards of Accounting
Basic Purpose of Accounting
The fundamental purpose which underlies the accounting of a Federal
agency is to discharge the inherent management duty to render an accounting
for the resources and operations for which it i: responsible and
to provide information necessary for effective and economical management
of such resources and operations. This duty requires the maintenance of
a suitable system of fhncial and related records from which needed information
on resources, liabilities and obligations, revenues, and costs can be
obtained and reported for the information and control use by appropriate
levels of management; other agencies and authority@ having control
responsibilities ; the Congress j and ultimately, the pubic.
Objectives of Federal Agency Accounting Systems
The principal objectives of the accounting systems of Federal agencies,
as stated in the Budget and Accounting Procedures Act of 1950 (31 U.S.C.
66a), are:
1. Full disclosure of the financial results of agency activities.
2. Production of adequate financial information needed for agency
management purposes.
3. Effective control over and accountability for all funds, property,
and other assets for which each agency is responsible.
4. Reliable accounting results to serve as the basis for preparation
and support of :the agency budget requests, for controlling the
quired by the Bureau of the Budget.
with the central
Notwithstanding that achievement of the foregoing objectives requires
application of the accrual basis of accounting, the, above law was amended
by Public Law 863, approved August 1, 1956 (31 U.S.C. 66a(c)), to
provide specifically that the head of each executive agency shall cause the
accounts of his agency to be maintained on an accrual. basis to show the
resources, liabilities, and costs of operations with a view to facilitating
the preparation of cost-based budgets. Specific provision was also made
for moneta7 property accounting and the use of cost-based budgets in
agency administration and operation. Thu the basis of accounting to
of financial transactions entered into is the accrual basis. As part of
a properly integrated accounting system maintained on the accrual basis,
appro riate data on obligations occurred and liquidated must also be
recor CFe d to provide information to assist in controlling expenditures and
reporting on the status of appropriations.
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execution of budgets, and 9or providing hancial information reaccounting
and reporting operations of the f reasury Department.
5. Suitable integration of agency accounting
be used by Federal agencies for the purpose o 2 providing ad,equate records
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The control objectives cited in items 3 and 4 above reflect the need to
comply with the specific requirements and limitations of such laws as
R.S. 3679 (the Antideficiency Act). One of the principal purposes of this
act is to prevent the incurring of obligations or the making of expenditures
in such a way as to create deficiencies m appropriations and to fix
responsibility within an agency for excess obligations or .expenditures.
Adoption of the accrual basis of accounting does not mean the abandonment
of fund control (i.e., control of obligations to prevent overexpenditures
and to accomplish the economical and efficient use of funds). Since
appropriations are made in terms of abligational authority, it is necessary
to accumulate financial data on obligations to measure the status of appropriations.
An a ency’s system of recordkeeping ing, and the related purposes.
Proper application of the accrual basis appropriately supplemented
by procedures specific all designed for fund control purposes
will not only produce reliable in information on costs, income, assets, and
liabilities, but also all necessary information relating to obligations incurred,
liquidated, and outstanding that is needed for financial control,
budget, and other financial management purposes.
cedures, must there f ore be designed to accomplish this as well as other E
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Practical Standards
In devising suitable accounting systems for Federal agency activities,
In working toward these objectives, certain practical standards must
the several objectives prescribed by law have to be considered.
also be recognized.
1. Simplicity
The procedures should be as simple and readily understandable as racaccounted
for. Simplicity is needed as a matter of efficiency and economy
in the accounting process and to promote reliability of results.
ticable, consistent with the nature of the operations and resources % eing
9. u8&fUzTW88
The overall objectives of accounting to produce information for financial
control, accountability, and reporting purposes must be sought. However,
unnecessary records and excessive details and refinements should
be avoided.
3. Relative accuracy, reliability, cvnd matefidity
precision in measuring the financial aspects of many kinds of transactions
is not *ustified where judgment is a significant factor. The objective
should Le to roduce expeditiously financial data that is useful and reaand
is not misleading.
All transactions occurring during an accounting period should be
recorded in the accounts and their effect included in the financial reports.
However, in determining the extent of summarization to be made in the
accounts and reports, and the preciseness of making allocations of cost
and income and of computing items where estimates have to be employed,
due consideration should be given to the materiality and relative signifi-
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Accounting processes require many estimates and judgments. Undue I -
sonably relia E le for control, information, and accountability purposes,
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cance of the items involved. In such operations, meticulous and extensive
procedures which do not produce materiall more accurate results or
provide other offsetting benefits should be avoi B ed.
on a cash and o % ligation basis, insofar as awunting for assets, liabilities,
of either the laws enacted by the Congress re r ating to the accrual basis of
Certain Minimum Requirements for Accounting Systems
An accounting system of a Federal agency which is currently maintained
income, and expense is concerned, with provision but once each fiscal year
for conversion of the data recorded to an accrual basis in connection with
the annual congressional budget, does not com ly with the spirit and intent
accounting or with the principles and standards for accoUnting prescribed
by the Comptroller General pursuant to those laws.
Where tlus kind of a system is employed, the primary emphasis in the
internal financial management processes tends to be on spending available
funds and preventing over expenditures. Prevention of over obligatioii
and over expenditure of appropriated funds (or other spending authority j
is essential and must be provided for in any system. Therefore, the
'accounting system must produce ad uate information on the status of
Congress, as reflected in the Budget and Accounting Procedures Act of
1950 and Public Law 863, approved August 1, 1956, is to have Federal
agencies work toward financial management systems th& iiot only will
prevent over expenditures but will also promote the use of cost information
and cost-consciousness in the management of Federal agency operations.
This approach should help to achieve greater efficiency and economy and
to eliminate cumbersome ,fiscal procedures ,that are not only costly to
ZTs roautth ebru tth aennc oonu roapgeer amtiannga igne mane netc oenmomphiacasils m oann nsepre. nding available
For purposes of accounting systems design and planning, the minimum
requirement for converting recorded cash disbursement data to an accrual
basis is that such conversions should be made monthly. Conversion at less
frequent intervals would generally not provide information sufklciently
current to be useful to .agency officials in managing operations. Monthly
cost data thus produced should be reported for the information and use
of the agency management by responsibility areas and should include
appropriate comparisdns..
In addition, the use of allotment procedures for controlling the obligation
and expenditure of funds must be restricted so that they are made
only at highest practical levels. Allot.ment accounts should not be u d ,
as a means of accumulating the distribution of charges by activity and
by object of expenditure. An accounting system which rovides for or is
based on detailed and multiple allotments to relatively f ow levels within
an agency and does not provide for the accumulation of costs on the accrual
basis by budgeted areas of activi cannot be approved under the standards
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a propriations and other data on o?b iIg ations incurred for Pu rposes of
e P ective fund control and budget presentations. The po icy of t.he
and objectives of accounting an 3 financial set forth in law,
U.S.C. 665 (g) ).
and Accounting
includmg R.S. 3679, as amended by Public
One of the reasons underlying the passage
Procedures Act of 1950, as amended by Public Law 863, ap roved August
1, 1956, was that the obligation basis of accounting, use$ generally by
3
i most agencies of the Federal Government as the prima basis of accounting
was not adequate to meet all of the objectives an 7 *requirements
of a mo fer n financial management system. The incurmnce of obligations
does not always coincide with the acquisition of assets, the incurrence of
actual liabilities, or the consumption or application of resources in the
performance of operations. Hence, the recording of financial transactions
only on the basis qf obligations incurred does not produce adequate information
on assets, liabilities, and expenses.
To attain the objectives of financial management envisioned under the
Budget and Accounting Procedures Act of 1950, as amended, and the
principles, standards, and related requirements prescribed by the Comptroller
General requires the development of an accounting system on the
accrual basis, including appropriate provision for fund control and the
development of adequate information on obligations incurred, liquidated,
and outstanding so that all essential management requirements can be
satisfied. 6
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PART II
Illustrative Procedures and Transactions
Summary of System Illustrated
The procedures described in this part are related to a hypothetical
agency to illustrate a simple method of controlling obligations incurred,
a satisfactory approach to the accrual basis of accounting, and the relationship
between these two financial management functions.
A hypothetical rather than an actual agency has been used for illustrative
purposes in order to highlight the procedures in most need of emphasis
and to avoid diversion of attention to the peculiarities of a specific
agency’s operations.
Obligation of funds is controlled at the appropriation level by the use
of an obligation register which is used to assist in preventing the over obligation
of the appropriation and otherwise in managing the utilization
of funds.
The budget for individual activities is prepared in advance in terms
of estimated costs. Monthly reports are prepared in which actual costs
are compared with such cost-based budgets for each appropriate level of
management.
.
Only one allotment of funds is made for the entire agenc
The agency’s accounts are maintained on an accrual
of the technique of recording expenditure transactions
on a cash basis and b recording accruals only at the
The system illustrated is summarized graphically on the chart on pages
12 and 13.
The system illustrated in this booklet. can be maintained either manually
or by appropriate machine ap lication. The decision to use or not
to use machine techniques would Be governed by considerations other
than those covered by this booklet-and the fact that the system illustrated
appears to be on a manual basis should not be considered as a guide to
agency action.
The records and reports included in this programare for illustrative
purposes only. Each agency should make necessary adaptations to fit
its own needs.
for liabilities incurred 5 ut not paid.
Description of Illustrative Agency
Financial and organizational features
sumed to exist :
For the purpose of this illustration, the following conditions are as-
1. Operations are hanced by a single appropriation by the Congress
each year.
2. Expenditure$ are principally for salariw, travel, and other administrative
expenses.
648520 0 - 6 6 2 5
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3. The organization consists of an administrator’s office, an office of
t-dministrative services, and two operating divisions, A and B.
R. The office of administrative services is responsible for those
branches.
projects.
Branch No. 1 is working on three separate
4. Under the activity structure adopted, pTogram activities have been
made to wincide with the organization units responsible for
carrying them out. This has been done for simplicity of presentation
even though, in ractice, such activities often cut across organizational
lmes. sased on these assumptions, the activity
classifications used in the budget, and their relqtionship to organization
units, are as follows :
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Program acti&W
Operating costs :
Activity A_______,_,__-__-,,_-
Activity B . . . . . . . . . . . . . . . . . . . . Activity C ___-________________
Activity D ,____,______________
Activity E ____________________.
Capital outlay : Equipment- _______-
Organization
Diviisian A.
Division B, Branch No. 1.
Division B, Branch No. 2.
Division B, Branch No. 3.
Administrator’s Ofice and Office of
Office of Administrative Services.
Administrative Services.
A further subdivision of Activity B is provided for in the costbased
financial plan underlying the budget, which is used for
internal administration and operation and for budget justification
purposes, as follows:
Subactivity B1 _______c_-____,______________________ Project (A).
Subactivity BL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Project (B).
Subactivity B3_ ____,___Pro_ject _(C). ___,______-__---____--__--
5. Although field offices or other decentralized accounting entities are
not illustrated herein, the basic accounting methods described in
this programare readiIy adaptable to decentralized accounting
operations.
Organiaation chrt
charted as shown on the gollowing page.
Financial control system
A single allotment for the entire agency is made to the head of the. Office
of Administrative Services.
Personnel actions and major procurement have to be approved centrally
by the office of Administrbtive Services. Each organizational segment
may incur obli ations for travel and minor procurement in accordance
with establishe lop erating plans and related cost-based budgets.
A central record of obligations incurred is kept for the purpose of
preventing overobligation of the appropriation. This record is called
the obligation control register and, IS used in place of the conventional
allotment ledger.
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The assumed organizational and activity structure of the agency is
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ninistrator's office, an office of
:rating divisions, A and B.
m6ces is responsible for those
mcipal programs of the agency
tnd account.ing, internal audit,
';her service functions.
3s and division B has three
: working on three separate
I, program activities have been
zation units responsible for
one for simplicity of presenta-
Activities often cut across orase
assumptions, the activity
Id their relqtionship to organi-
Organkeatbn
Mvision A.
Division B, Branch No. 1.
Division B, Branch No. 2.
Xvision B, Branch No. 3.
Administrator's Office and Office of
Iffice of Administrative Services.
3 is provided for in the coste
budget, which is used for
m and for budget justificatioii
Administrative hrvices.
_________________________________________ - PPP_rrr_ooojjj_eeeccc_ttt _(((CAE-) ))...
ralized accounting entities are
routing methods described in . to decentralized accounting
.y structure of the agency is
3 made to the head of the Office
s have to be approved centrally
Each organizational segment
3r procurement in accordance
cost-based budgets.
1 is kept for the purpose of
iation. This record is called
in place of the conventional
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Financial control of costs of the divisions and subordinate units is
maintained through the use of cost-based opemting budgets. These costbased
budgets are segregated into monthly budgets for each activity and
pr0ject.l Each responsible official receives at the end of each month a,
r(e grtp ’ c o2m5.)p arEinagc hac mt.uaan1ac goesrts o ffo ar nh iosr agcatniviziatyti wonitahl uthneit ampapyro evxecde ebdu dingdeit-.
vidua cost itams in his budget as long as he does not exceed the total
bu eted cost of the activity for which he is responsible. The degree of
is a matter to be worked out by each agency.
Accounting records
fle%xi i lity to be permitted in deviating from cost-based operating budgets
The a ency’s accounts are maintained centrally.
The fo llowing is a list of those accountinf records which are
pertinent to this illustration. It does not inch e all records that an
actual agency would need :
Journal vouchers
Obligation control register
Cash disbursements register
Supporting fiscal and amounting documents
A chart of geneml ledger ~icc0unt.uss ed by the agency follows. The
chart includes only those accounts used in this illustration and not all of
the accounts which would generally be used by an agency of this type.
Fund Balances With U.S. Treasury-Current Year-
Fund Balances With U.S. Treasury-Prim Year411234
Deposit Fund FWOl (Taxes)
Deposit Fund X8050 (Bonds)
Advances to Employees for Travel
Equipment
05ce Furniture and Fixtures
Accumulated Depreciation-Equipment
Accmulated Depreciation-Oflice Furniture and Fixtures
LL4BILTTIES AND INVEBTMENT OF THE V.S. QO-MEHT
Liubilitiee
Accounts Payable-Government Agencies
Accounts Payabldthers
Accrued Transportation and Travel Allowances
Other Accrued and Unbilled Liabilities
Liability for Federal Income Taxes Withheld
Liability for FICA Taxes Withheld
Liability for Employer’s Share of FICA
Liability for Deductions From Employees’ Pay for Bond Purchases
Accrued Annual Leave
lThe use of pro &.a in thla illustration fa not intended to imply that anch a breakdown of
the account8 would be appropriate in all instances. This la a determination that will have to
be made in each cas%
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lnveetrnent of the United Btates Ciovenwnent
Appropriation Accounts :
3024 Unapportioned Appropriationdrrent Fiscal Year
3025 Unallotted Apportionments-Gurmmt E’isca!. Year
3027 Unobligated AllotmenMurrent Fiscal Year
Unliquidated Obligations :
3028 Current Fiscal Year
3029 Prior Fiscal Year
Expended Appropriation :
3030 Current Fiscal Year
3031 Prior Fiscal Year
3032 Investment of the United States Government
5100 Activity A-Division A
5200 Activity B-Division B, Branch No. 1
5300 Activity &Division B, Branch No. 2
5400 Activity D-Division B, Branch No. 3
5500 Activity E-Administrator’s Office and Office of Administrative Services
Notes regarding chart of accounts
1. Accounts for payroll deductions for amounts to be remitted to the Civil Service
Commission have been omitted from the chart of accounts since they are in the
nature of memorandum accounts.
2 Subsidiary records of equipment and office furniture and fixtures are maintained
on a composite class basis in lieu of individual item records.
3. The subsidiary records in support of the accounts payable control account consist
of the unpaid documents flled by payee.
4. Appropriate subsidiary ledgers are maintained to accumulate costs by category
of expense for each activity and for each project within an activity.
5. In this illustration, the general ledger control accounts for expenses are maintained
by the principal areas of budgeted activity and responsibility. These expense
control accounts could, alternatively, be maintained by category of expense.
Under this approacb, the category of expense control accounts in the general
ledger could be established as follows :
5004 Personnel Compensation
5005 Personnel Beneflts
5006 Travel and Transportation of Pereons
5007 Transportation of Things
5008 Rent, Communications, and Utilities
5009 Supplies and Materials
5010 Depreciation Expense
5011 Annual Leave Expense
Expenaee
In addition, separate subsidiary accounts would be maintained for each activity
and for each of the projects under Activity B, Branch No. 1.
Illustration of Transactions
Apportionment of funds
The appropriation received from the Congress for the current fiscal
year was $6,264,000. Quarterly apportionments approved by the Bureau
of the Budget were as follows :
Quarter : Amount
1st ............................................. $1,52l, OOO
2d ............................................. 1,521,OOO
3d _______-_______-___________1,_52_1,O_O_O_ ________--_--
4th _________________________1_,62_1,_OO_O_ __________----
Total amount apportioned -____________6,_08_4,_ OO_O _-___
Reserve ............................................ 180,OOO
Total appropriation- . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,284,O OO
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Journal ent.ries to record the appropriation, apportionment, and first
quarter allotment art3 as follows:
July 1, JV 1
100P--Fund balances with U.S. Treasury __________________ $6,264, ooo
3024-Unapportioned appropriation-current fiscal year_-----___ w, 264, OOO
To record appropriation received.
3024-Unapportioned appropriation-eurrent flscal year---- $6,084, OOO
3025-Unalloted apportionments-eurrent fiscal year ____________ $6,084, OOO
To record apportionment for current fiscal year.
July 1, JV 2
July 1, JV 3
3025-Unalloted apportionments-current flscal year------ $1,521, OOO
30n--Unobligated allotments-current fiscal year_ ________-$-1_,_5_WO ,W
To record first quarter allotment for current fiscal year. i
Control of obligations (fund control)
Use of ohligation controZ register
An obligation control register * is 4. for the one appropriation made
to the agency. This control record is in addit.ion to the use of budgets for
controlling the costs of each organizational segment. The cost budgets are
converted into obligational requirements for the agency as a whole as
often as the circumstances require.
An obligation for personal services of permanent. employees is recorded
at the begnning of each month for the entire month because payrolls for
such a short riod can be estimated with a high d ee of accuracy.
soon as the information is available.
Obligations for travel are recorded on the basis of
individual travel orders? All other items are recor
posting wherever possible, on the basis of individual obligating documents
such as purchase orders, contracts, etc.
The procedures illustrated result in entering obligations in the control
register in some instances prior to the time the technically become valid
26,1954 (31 U.S.C. 200). At the end of each month, however, and at such
other times as reports of obligations incurred may be required, adjustment
to the obligations recorded in the control register is made to conform the
recorded amounts to agree with requirements of law and regulations. To
the extent that entries in the obl’ ation control register are made prior to
an official record of legal obligations incurred. Until such time as entries
in the control register are adjusted as rovided for herein, the control
of available ap ropriations, and only after adjustment does the register
Obligations re T ating to temporary employees are reco 3 separately as
obligations as defined in section 1311 of Public E w 663, approved August
actual incurrence of obligations, it e register does not, of course, constitute
register functions primarily as a means P or precluding the overobligation
become a recor f of obligations.
a The accounting systems of several Federal agencies provide for the malntenance of an obli-
*As an alternative. travel costs could be estimated for the entire month and recorded at the
Also other items of a recurring nature coule be entered in a lump
p t l o n control register Bimilar to the one illustrated in this booklet.
beginning of the month.
6rm at the beginning.of the month supported by a rhedule of the details.
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ton, apportionment, and first
?ar_ -___$1_,52 l,OOO
1 year ______________ $l,52l,lkm,
rear.
01)
r the one appropriation made
Won to the use of budgets for
3gment. The cost bud ets are
:or the agency as 8 w a ole as
w e n t employees is recorded
re month because payrolls for
h a high d r e e of accuracy.
ses are reco 4. separately as
ns are recor rp ed, usPinogs tignrgo uOpf
the basis of
idividual obligating documents
ring obligations in the control
I the technically become valid
ch month, however, and at such
d may be required, adjustment
gister is made to conform the
its of law and regulations. To
ntrol register are made prior to
,r does not, of course, constitute
-ed. Until such time as entries
mided for herein, the control
i' precluding the overobligation
w adjustment does the register
olic E aw 663, approved August
provide !or the maintenance ot an obllfor
the entire month and recorded at the
rrlng nature coul& be entered In a lump
edule o! the detail%
th1B booklet.
The recording of certain types of items in the obligation control register
before they become valid obIigations against the appropriation facilitates
financial planning. When a relatively fixed charge, such as payroll, can
be estimated in advance with a high degree of accuracy, it enables an earlier
determination of the amount available for other items and thereby is an
aid to financial planning. An earlier decision can then be made on the
necessity or desirability to revise plans to avoid an overobligation of funds.
However, some agencies may refer to record individual items in the
cedure provides a satisfactory record on the basis of which overobligation
of appropriations can be revented or other management decisions made.
obligation document, explanation of obligation including type of item, and
columns for amounts of obligations incurred and unobligated balance.
An illustration of the obligation control register showing a numbkr of
hypothetical transactions follows :
obligation control register as t R ey become valid obligations if this pro-
The obligation contro P register contains columns for date, reference to
Obligation Contrd Register
Appropriation Rymbol: WlB.4
July 1 I AA-l________1_s_t quarter aUotrnent-cnrrent l33cal year ______________ P.O. 98180 ______ I Purchase of chemicals-Chemical M ~ ~ ~ f ~ tCo~-- i n f t 3 WP-l____-____Re-g ular payrolls for the month of July ________________I t352,511.00
428.60
5 I P.O. 98181 ______ Purchase of 4 cameras-ABC Outid Coru_ _____- _ _____ 1 8.000.00
(83.64:
BmOunt8 recorded and actual amount of obligations
poses of illustration). ~
incurred in July. (8ee computation on p. l6.)
To adjust unobligated balance for daerence between
~~
Unboablalingcaet ed
$1,521, OOO. 00
1 168 059.40
1:163:059.40
1: 15i9lO. 40
1,157,910.40
1,008,084.88
1,008,148.32
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1 ,11578 ,81304.40
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The payroll entry for July of $352,511.00 consists of a partial payroll
for the first 8 days of the month, the 2 weeks' payroll ended July 22, and
awrued payroll of 9 nine days from July 23-31, as follows :
Partial payroll for period ended July 8-8 days ________ $113, $54.00
Payroll for period ended July 22 ______________________ 166,702.00
Accrued payroll July 23-31 _________________________ 71,855.00
Total ......................................... 352,511.00
Liquidation of individual obligations is not posted to the register.
Cancellations of obligations or adjustments for inaccurate estimates, where
significant in amount., are made durin the month. Otherwise, one adjustment
is made at the end of the month for any differences between the total
amount recorded in the obligation register and the total amount of actual
obligations incurred during the month. (See computation of adjustment
on p. 15.) This procedure produces the same results at the elid of each
month as would be produced with a conventional allotment ledger and
avoids the work involved in recording the liquidation of individual obligations
throughout the month.
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CONDENSED GRAPHIC PRESENTATION OF
A. Documents supporting entries to
Obligation Control Register. *
(Recorded currently)
1 --'
DOCUMENTS I BOOKS OF ORIGINAL ENTRY l
Obligation Control Register
Journal Vouchers for Por?ing
1. Month end accruals to general
ledger and subsidiary accounts.
2. Monthly changes to the appropriation
accounts in general ledger.
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Cosh Disbursements Register
B. Disbwsornent Vouchers (Voucher
and Schedule of Payment-% F.
1166) with supporting documents
from files. (Recorded currently)
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C. Month end .inventory of open
documents from undelivered
orders and accounts payable
files.
'0. Month and computation of actual
obligations incurred, unliquidated
obligations and expended appropriation,
including adiustment to
. Obligation Control Register. c
. 1. Obligating documents, such as purchase orders, invoices, contracts, travel orders,
estimated payrolls, etc., posted currently to Obligation Control Register and flied.
@ Disbursement vouchers (S. F. 1166) properly coded, posted to Cash Disbursements
@ Month end inventory of undelivered orders and accounts payable documents, plus data
from Cash Disbursements and Obligation Control Registers used to obtain obligations
incurred, unliquidoted obligations, expended appropriation, and net adjustment required
to Obligation Control Register. This information posted to applicable general ledger
accounts and Obligation Control Register. Accruals from inventory of accounts payable
documents properly coded, posted by iournal voucher to applicable general ledger and
.
B .
Register and subsidiary accounts.
:
, '
,' :
. ' subsidiary accounts. Documents stamped to indicate accruals posted.
I2
. .
... _-
f THE ILLUSTRATED ACCOUNTING SYSTEM
FILES, GENERAL LEDGER AND SUBSIDIARY ACCOUNTS REPORTS
t
PURCHASES
ACCOUNTS
PAYABLE I
General Ledger Accounts
Statement of Assets and Liabilities.
Statement of Application of funds.
Statement of Status of Appropriation.
Statement reconciling costs with
obligations.
Reports required by central control
agencies.
Other reports. ,
I I t 1 1 1
Subsidiary Accounts
1. By obiect of expenditure for each
activity (Division and Branches),
also for ooch project within an
Cost reports showing comparison
with budget by activity (Division,
Branch, and project).
Report of abiect classification.
Cost projection reports by activity
and project.
Other reports.
I I I l
a The flow of all documents in and out of the files has not been charted. For example,
evidence indicating receipt of goods and services would be attached to obligating
R documents and placed in accounts payable files and when paid transferred to paid document files.
9 @ Cash Disbursements Register totals and accruals posted to general ledger accounts
at end of month.
@ Details in subsidiary accounts should agree with applicable control accounts in
general ledger.
e
13
Prevazidation of obligations
One method of assuring that obligations are incurred only when there
is an unobligated balance available for the purpose is to require didation
of each obligating document prior to its release. This procedure requires
that all such documents flow to the individual responsible for maintaining
the obligation control register where a determination is made as to whether
the unobligated balance is sufficient to cover the proposed obligation.
In this illustration, no provision was made for revalidat.ion of obligathe
appropriation level, it should not be necessary to prevalidate abligations
as a general rule, because effect.ive planning, including projections
of the effect of future operations, should provide ample warning of the
likelihood of overobligating available funds.
Because of the many and varied situations which exist throughout the
Government, however, there are instances when it is necessary to use prevalidation
techniques. Usually, however, for agencies of the type used
in this illustrat.ion, this procedure should be needed, if at all, only for
temporary periods until plans can be adjusted to operate within the limits
of available funds or until additional authority can be obtained.
Document control
Documents in support of outstanding obligations are kept under good
physical control at all times. Separate files, by appropriation and fiscal
year, are kept for each of the principal types of obligations such as payroll,
travel, purchases of all types, communication services, etc. The obligation
document files are further segregated between undelivered orders and
accounts or accrued ayables and are maintained in current condition
to accurahly disclose t e details of these two categories of obligations. As
itams are processed for payment, the obligation documents are removd
from the obligation file and attached to the related vouchers.
Basis of entries to appropriation accounts and adjustment of
tions. For the type of agency illustrated with o g ligations controlled at
obligation control register
total obligations
incurred, unliquidated riation are maintained
during the as of the end of
each month for
.
1.
2.
3.
14
Take the month-end totd of the cash credit c&mn for the current
appropriation from the cash disbursements register, reduce this
such as travel advances.
To the figure in item 1 above, add.or subtract the increase or decrease
in accounts payable and accrued liabilities as shown by an
inventor of the related documents. The result is the amount of
expenddappropriation on an accrual basis for the month.
To the ex ended appropriation (item 2) add or substract the infigure
for disbursement items that do not represent obligations, b
crease or x ecrease in outstanding obligations for which goods and
services had not been received (sometimes referred to as undelivered
orders) as shown by an inventory of the related documents. The
result is the total obligations incurred during the month.
4. Compare the total obligations incurred during the month with the
total amount of obligations recorded in the obligation control
register for the month. The difference represents the amount by
which the unobligated balance in the obligation control register
should be adjusted.
Prior to making the computation, an inventory is taken at the end of
each month of the outstanding obligation documents segregated between
(1) delivered orders for which payment has not been made (accounts
and accrued pa ables), and (2) undelivered orders. The results of such
inventory as ofJuly 31 are summarized as follows for appropriation
4421234 :
Accounts payable :
Government agencies :
Payroll (deductions and employer's contributions) __ $27,065.75
Materials and supplies _______-_________: _________ 1,720.00
Rent4 communications, and utilities ______________ 5,071.25
P a y r o l l _ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~44,~78~9.2~5 ~ ~ ~ ~ ~ ~ _ , - _ ~ ~ Travel ___________-______-___________2_,0_7_1._3_4 ______
Materials and supplies ________________-__________ 1,!272.00
Rents, communications, and utilities _____________ 2,421.24
Travel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,526.38
Rents, communications, and utilities __________________ 4,072.51
$33,857.00
Others :
50,553.83
Other accrued and unbilled liabilities :
5,598.89
Total accounts payable and other accrued and unbilled liabilities- 90,009.72
Undelivered orders_ ___________________________8_9-,_35-0-._00_ -_--_--_----_-
The computation for this illustration, following the steps set forth
above, is as follows:
(All items relate to the approprlation for the current Bscal year)
(1) Cash disbursements applicable to current appropriation (4421234)
during July (from cash disbursements register-see p. 18) ______ $333,851.96
Disbursements during July not representing obligationstravel
advances (from cash disbursements register-
Item Amount
Dednc t :
8e8 p. 1 8 ) _ _ _ _ _ ~ _ ~ _ ~ ~ _ _ _ _ 3_60,.00~ ~ ~ ~ ~ ~ ~ 333,491.96
(2) Increase (or decrease) in accounts and accrued payables during
'
Ending inventory July 31 _______________________ $90,009.72
(3) Expended appropriation, accrual basis __________________________
(4) Increase (or decrease) during July in outstanding obligations for
which goods and services had not been received (from inventory
July from inyentory of documents (see above) :
Beginning inventory July 1 ______________________ 0 90,009.72
423,501.68
of documents-see above) :
Endiig inventory July 31 . . . . . . . . . . . . . . . . . . . . . . . . $89,350.00
Beginning inventory July 1 _____________________ 0
Unliquidated obligations July 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89,350.00
(5) Total obligations incurred during July _________________________ 512,851.68
15
. . . ~. . .. i. . ,. .
!
r
Item Amount
(6) As recorded in obligation control register (see p. 11) :
Unobligated balance July 1_ __---------~--$-1_,5_21 , OOO. 00
Deduct unobligated balance July 31 __________ 1,008,064.68 512,935.32
(7) Difference representing amount by which unobligated balance in
s3.64
Since the illustration covers the first month of the new fiscal year and
the current appropriation became available July 1, there were no outstanding
obligat.ions applicable to this appropriation at the beginning of
the month. The outstanding obligations as of the close of the revious
month would apply to the prior year ap ro riation. In su L equent.
months, consideration would be given to ktf beginning and ending
balances of outstanding obligations.
The journal entry to record the above information in the appropriation
accounts of the general ledger is as follows:
July 31, JV 4
obligation control register should be increased (see p. 11) ________
1
1
3027-Unobligated allotments (4421234) _________________ $512,851.68
To record obligations incurred, unliquidated obligations, and expended
3028-Enliquidated obligations (4421234) _____________________ $89,350.00
3030-Expended appropriation (M1234) ______________________ 423,501.68
appropriation for July.
Journal entries are also made to record the liquidation of obligations
ap licable to prior year a propriations. For example, in the illustration,
P.8. 98178. was recorde a during the prior fiscal year as an obligation
against the prior year appropriation (4411234). The equipment was
received and aid for in July (see Cash Disbursements Re ster, Voucher
No. 15, p. 187. The entry to record liquidation of this o% l igation is as
follows :
July 31, JV 5
302!%Unliquidated obligations (4411234) ________________________ $388.00
To record liquidation of prior year obligations during July.
3031-Expended appropriations (4411234) ________________________ $388.00
The workpapers used in computing obligations incurred, unliquidated
obligations, and the expended appropriation for the month are retained
as a part of the records of the agency and are used at the end of the following
month for the beginning inventory of open documents.
In addition, journal entries are made tu record the outstanding liabilities
accounts and accrued payables) based upon an inventory of documents
see p. 15) as shown in item (2) above. Illustration of these journal
m
entries is contained on page 21.
Recording transactions on accrual basis
For the hypothetical agency used in this illustration, it is assumed that
cost information is not needed more frequently than at monthly intervals.
The adcounting procedures followed therefore .provide for recordmg
cash disbursementsr egister for this purpose., and for recording accrued %uta
expenditures dunng the month on a cash disbursement basis, usin
16
v
I
unpaid costs at the end of the month based on an inventory of unpaid
bills, invoices, or other appropriate documents and information.
This procedure is illustrated because it avoids the dual processing
of payment documents (once at the time of recording the liability and
again at the time of payment) for expenditure transactions that accrue
and are paid in the same month. One of the requirements for good administration
is that bills, invoices, and ot.her liability documents be paid on as
current a basis as practicable. If this is done, the quantity of documents
to be inventorled as of tnhee nd of each month will be kept at a minimum.
The question of whether the illustrated approach or the alternative of
recording items currently as they accrue, or some combination of these
two ap roaches, is one that should be decided in each case based on the
Effective document control procedures are followed so that outstanding
accounts and accrued payables can be readily determined at the end of
the month from an inventory of documents in the files. (Special registers
or workpapers may be maintained, where appropriate, to assist in the
accrual at the end of the month of those liabilities which accrue with the
passage of time, such as interest, rent, etc.) Although this method of
determining accounts and accrued payables highlights the need for good
document control, it should not be inferred that such control is not also
essential when a satisfactory alternative is used.
The month-end accruals are charged to the costs and other affected
accounts with an offsetting credit to accounts payable or other accrued
liability accounts. The related disbursements made in subsequent months
are charged to accounts payable or accrued liability accounts to the extent
the liability was previously accrued?
In order that there will be no doubt concerning the amounts which
should be charged to the appropriate payable account at the time of payment
in a subsequent period, each document for which an accrual is
recorded is appropriately annotated to show the accrual and date.
particu P ar circumstances involved.
Use of cash disbursements register
A cash disbursements register is used as a book of original entry and for
summarizing for posting to the general ledger accounts the disbursement
transactions scheduled for payment during the month. The original
distribution in the cash disbursements register is to the activity or other
affected accounts. Subsidiary accounts are posted currently during the
month directly from the distribution shown on the disbursement vouchers
(Voucher and Schedule of Payment, Standard Form 1166) and attachments
thereto. For activity B, subsidiary accounts are maintained by
category of expense for each proje~t.~
4blternatfve procedures to accomplish the same rewlt include (1) reversing all accruals
as of the beginning of the succeeding month and recording the transactions in full on a dlsbursement
basis. and (2) recording accruals at the end of each month and reversine accruala
of the previous month on workshe& to be used onlv to adiust the recorded book a6o.u_nts ~f-o r. _ flnanciaf statement purposes. Under the latter methbd, acciuals should, as a minimum requirement,
be recorded tn the accounts for the laet month of the fiscal year.
'In instances where the activity or other account cannot be charged at the time the voucher
is recorded it will be necessary to record the charge8 in a Clearing account for later didrlbutlon
to the app;opriate activity or other account.
17
i
Payroll ending June N-compensation~
Payroll ending June 24-beneflts ---____
Rent for month of June _-____----_--____
Supplies received in June-P.O. 98178. -
Travel advanm-Hayes. - __________ ___ -
Travel voucher--lester A. Mter-
June ..................................
SUP lies and materials-P.O. 98180 -____
Equtprnent-P.O. 98182 ______--________
Freight on P.O. 98180 __-______--__--____
Payroll ending July 8--compensation--
Payroll ending July &beneflts ______--
Payroll ending July 8--oompensatlon--
TPaeylerpohllo enned biinllg - _Ju--ly-- &_b_e_n_ef-i_ts_ -_ -_-__--_--_ _____ __
Payroll for temporary labor, July 10-
1PCompensatlon .___________________
-Benefits ______._____________I_____ Equl mcnt. 4 cameras, P.O. 98181 ______ Frcigh on P.O. 98181 _________--________
Travel voucher-Frank Jones _-________
Equipment (order placed June Ze)-
Payroll ending July 27-compensation.
Payroll ending Jul zbbene648. ______ SKmmnry of all otier transactions for
P.O.98179 _____________________________
Data a
entry
----------I__
______-$1_3_1,_10 2.00 $37,617.00 $93,485. 00 ._ ________ __________ __________ __________ __________ ._-__________ .____
_d____-___ ______ ______________ 199,1,2~6.~00)00 . l99,,1o2M8)..00 00 ________2__6__9__.__ M____) ______________________________ ______________________________ ______________________________ ______________________________ ______________________________ ________________________ _______________________ ______. 1114 160.00
_.___I__12_8.6_0 _ _________ 194.60 __________ __________ __________ __________ __________ 1114 (66.00)
442.88 ___________ __________ ________________ $.44_2.96_ _________ __ __a_______ __________ ________ _________. 60.00 ___________ __________ __________ __________ __________ __._--I_ ________ ____________ __1624 M).00
_____4_6_? 0--0 __6_8__,0_2_2__. 0_0_ __1_5_,_2_8_9_._0_0 _ 4__2_,_7_3_3_._0_0 ____________________ ______4_6_._0_0 ____________________ ____________________ ____________________ ________________ ____________________ ____---__6,_0 77.00 6,077.00 ___ _______ __________ __________ __________ __________ __________ ________ _.________ 104,667.00 ___________ __________ __________ $38 790.00 13 116 00 $13 818 00 $17 976.00 $!20 968 00 ________ ___.__.___ 9,287.00 ___________ __________ __________ 3: 363.00 1: 223: 00 1: 202: 00 1: 666.00 1:833: 00 ________ __________ 382. 00 ___________ __________ __________ 382.00 __________ __________ __________ __.___________ ___.
993.00 ___________ __________ __________ __________ 993.00 _______________. _.___________ ______ ___ __________ 31.00 ___________ __________ __________ __________ 31.00 __________ __________ __________ ________ __________ 7,920.00 ___________ __________ __________ __________ __________ __________ __________ ____152_4 7_,920..0_0 __
52.00 ___________ __________ _.______________ _____________ _________ __ __________ __________ 1G24 52.00
nS.0 0 ___________ __________ __________ __________ 229.00 _______._______ _____________ __________ ____ ______
~ ________ 388.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1624 388.00
167,737.00 ___________ __________ __________ 60,033.00 20,901.00 23,073.00 25 072.00 28 65% 00 ________ __________ 8,965.00 ___________ __________ ____3.421_.00 _1,_811._00 .1,_262. 00 1: 170.00 1: 301.00 ________ __________
269. M) __________ $360.00 _________.______ _____________ .____ ___________ ______________._ _____________ ____
-
July :
I
July:
Trave1 voucben paid _____--___-____
Transportation vouchers paid ______ Rent, communlcation, and utllity
vouchers paid . . . . . . . . . . . . . . . . . . . . Supplies and materials vouchers
mid ______________________________
1I
1
11
1'
2
7.
21
3
-
6708.00 ___________ __________ 2, OM). 00 __________ 1,077.00 1,273.00 1,308.00 ________ ______._._ 646.00 ___________ __________ __________ 232.00 __________ 203.00 141.00 70.00 ________ _________.
26,343.00_ __________ _______________. 1_0,02_2.00_ __.. _.4_,&14_.00 _5,_285._00 6,492.00 ________ _______-__
9.993.00 ____.____4._619._00 _______1._921_._00 __2.0_8_2.0.0. __1._47_1. 00_ ___________________ ._______
-
'ouche
No.
-
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
Cash Disbursements Register With Illustrative Transactions
Explanation
Aocountstobecredited Accounts to be debited
Activity accounts
Fund balanee with I Other accounts
Current Prior year, Govern- Others, Activity Activity Activity Activity Activity Account
/rdar, Iw1/ 1005 ln$?nnd 2006 1 A, 5100 1 B, 5200 I 0,6300 1 D , W I E, 65M) 1 NO. 1 Amount
------________________
I 333,851.96I 224,113.10I 87,109.00 I1 36,682.10 I1 22,430. 00I 39,174.881 47.,100 .0 0 I64,'664 .00 I62,'101. 00 L____I____- 8, 704.00
a
7
Illustration of voucher for payroll
was accrued during the prior year, are illustrated as follows:
Details for the voucher in support of the July 8 payroll, part of which
VOUCHER AND SCHEDULE OF PAYMENTS
2E!kzs.-&*2
w i aj-
W A C N E I ( I OM ~ N l ! S H Y D I I )
D. 0. Voucher No.
Bu. Ekhaide No.
ledger aod
rched beet.
D.O.MPX NO.
Q
19
Attachment to Stundard Form 1166F'oucher and Schedule of Payments I Debit 1 Credit
Journal entriew-accrual transactions
Journal vouchers are used to record accruals and other transactions
not entered in the cash disbursements register. In the illustration, the
cash disbursements register is used only for cash transactions relating to
ap ropriated funds.
Journal vouchers Nos. 6 through 9 (see below) were made to record
accrued costs as of July 31 in the appropriate general ledger and subsidiary
accounts. These entries record the costs incurred during the
month but not paid as of the end of t.he month. The data for preparation
of these entries is obtained from an inventory of outstanding liabilities
as of the end of the month (see p. 15).
Accrued costs are recorded in this manner if the amounts are significant
even though invoices have not been received. In the absence of an invoice,
an estimate based on past experience is made of the amount accrued.
As a matter of accounting routine, standard journal entries for accruals
are used each month. For example, entry No. JV 6 each month records
the accrued ayroll. Similarly, entry No. JV 7 each month records
20
the accrual o P travel costs. JV 8 and JV 9 record eaoh month the accrual
of the cost of (1) materials and supplies and (2) rent, communications,
and utilities,. respectively. Although not illustrated, the journal vouchers
would contain detail information for posting to the subsidiary accounts
maintained by object class.
J a r 4 Youehera
Property accounting-materials and supplies
In this illustration, materials and supplies are charged to expense when
acquired.
An alternate pmtice is to enter such items in an inventory account when
received and transfer them to expense when used. The method to be used
depends upon the relative significance of the expenditures for materials
and supplies. The practice of charging materials and supplies to expense
when consumed will produce the more accurate cost information by periods
and provide a means of better control of such items. However, it requires
the establishment of an inventory account and the adoption of some form
of inventory pricing such as first in, first out, average cost, etc. The question
of whether materials and supplies should be charged to expense when
acquired or when issued from stock is a matter that has to be evaluated
in each case. Among the considerations to be weighed is whether the costs
of maintaining aii inventory account and related issue and pricing procedures
are warranted by the increased control and more accurate cost
information.
21
Property accounting-fixed assets
Fixed assets, such as opemting equi ment and furniture and fixtures,
composite basis in lieu of individual item records.
For the hypothetical agency, the investment in depreciable fixed assets
is considered large enough to warrant recording depreciakion on them and
including such cost in the monthly cost reports. Depreciation expense is
therefore recorded in the activity accounts over the estimated useful life
of these assets. Simple methods are used to determine the periodic
amounts of depreciation expense to be recorded with the objective of
obtaining a reasonable degree of accuracy without resorting to elaborate
and time consuming procedures.
For the month of July, the following entry was made to record depreciation
of equipment and office furniture and fixtures :
JV 10-510eActivity A _______________________________________ $6,130
52oeBCtipit-y B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,860
5300-Aetivity C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,860
5400-Aetivity D _______________________________________ 3,860
550eAetivity E _______________________________________ 4,570
1526-Accumulated depredation-uipment _________$1.2_,37_0_ __
l257-Aceumulated depreeiation-offiee furniture and
fixtures ___-____________-___----__--9-,9-1_0_ ----_---
To record depreciation for the wnth of July ae per working papers.
are capitalized in the amounts. Subs1 & 'ary records are maintained on a
Accounting for leave
For this illustration, no separate accounting for accrued annual leave
is made during the fiscal year. The minimum requirement for accounting
for annual leave, under the principles and standards prescribed by the
Comptroller General, is that the liability for employees' annual leave
earned but not taken or disallowed should be determined at least annually
and recorded in the accounts as of June 30.
Accordingly? the accrued liability as of the end of the fiscal year is
determined and the accounts are adjusted to show the net change during
the year. Since the first month of the year is illustrated rather than the
last, no entries are shown for annual leave.
The entry 'to record an increase in liability consists of a debit to the
appropriate activity expense aiccllunts and an offsetting credit to the
liability for accrued annual leave. The annual leave expense should be
distributed to the activity 'accounts on some equitable basis.
Revenues and receivables
Accruals for income or other items involving receivables are not illustrated
since this type of transaction generally does not constitute an
unusual problem for an,agency of this type.
Accounts receivable that do arise are recorded at the time the sale or
other type of transaction is consummated and the amount due is known.
Any receivables which have accrued and which have not previously been
recorded are inventoried and accrued as of the end of each month. (As
noted on p. 8, the chart of accounts included herein does not include
all accounts generally needed by this type agency. Among those omitted
are accounts for the receivables and revenues.)
22 I
Object classification data
The classification of obligations incurred by object class needed for the
preparation of the annual budget is obtained from the general ledger and
subsidiary cost accounts by the addition of undelivered orders classified
by object at the end of the period.
It is recognized that there are other satisfactory methods of obtaining
object classification data which may be more appropriate in a given case.
Each agency should devise a method to obtain this information that best
fits its situation. However, consideration should be given to making
maximum use of the general ledger and subsidiary accounts for this purpose
in order to minimize the work involved.
Determination of cost by activities
The activity accounts are maintained to accumulate cost information (on
the accrual basis) by activities and organizational units for reporting
monthly to management for information and control purposes. Cost
information so developed also supports the annual budget justification as
required by Public Law 863, approved August 1, 1956.
Costs are recorded in the activity aocounts at the time disbursements are
made and, at each month end, accrued costs are added. The subsidiary
accounts, by object class, are posted from distribution details placed on the
disbursement documents and jaurnal vouchers.
In this illustration, costs are distributed to activities and organization
units on the followw'bases :
Personal services and per-
Travel _______________________
Supplies and materials ___--_--
Cost item
sonnel benefits.
Rent, heat, light, and power----
Communications ________-_____
Depreciation ___________ i _____
Tramportation of things _______
Ba& of dietrlbutbn
Services rendered.
Activity for whichtravel was perPormed.
Unit ordering the supplies and materials and for
items ordered for stock, on the basis of past
experience.
Space occupied.
Number of telephones or specific identil8cation.
Assignment of equipment and office furniture and
Same basis as supplies and materials or specific
fixtures.
identification.
The distribution of personnel Gosts is obtained from the payrolls which
are prepared in accordance with the project, branch, or division for which
personnel perform their services (see p. 20). Time reports are prepared
on17 when there is a deviation from the foregoing procedure, i.e., when
an individual performs services for a unit of the agency other than the one
to which he is assigned.
In instances where the amount applicable to an activity or other account
is not known at the time of original recordation, it will be necessary to
charge the payroll and other items to a clearing account pending ascertainment
of the distribution to be made to the activity or other accounts on the
basis of individual time reports or other appropriate information. Balances
in clearing accounts should be distributed prior to the preparation
of monthly reports.
Reports
Cost reports
Monthly cost reports are prepared to disclose the costs incurred for each
activity and project. These reports are prepared in comparative form
23
I
.-
to show the current month's costs and their relation to the budgeted
amounts. For the reports in this illustration, administrative and supervision
costs applicable to each activity are not-separated; however, in actual
practice an agency may wlsh to have thls cost reported separately
from other costs.
Cost reports are prepared for each activity by project and organizational
unit and for the agency as a whole. They include :
Individual project cost reports.
Activity cost reports.
Division cost re rts (consolidation of three activities in division).
Cost summary po"r all activities of the agency.
Each higher level report consists of a consolidation of the reports on
the lower levels. For example, the cost report for activity €3, Branch No. 1
consists of the totals from the reports for projects (A), (B), and (C) and
the cost report for division B consists of totds from the reports of activity
%Branch No. 1, activity &Branch No. 2, and activity D-Branch
No. 3.
In addition to comparisons with monthly budget amounts, other comparisons
can readily be provided for, depending upon the wishes and
needs of the management. For example, provision can be made for
(1) comparisons between the cost incurred during the current month and
the same month during the previous year, and (2) comparisons between
the.ccumulative costs incurred for the year to date and for the same period
in the previous year.
To the extent practicable, it is desirable to make comparisons in terms of
what has been accomplished for the costs incurred in relation to the plans
and cost estimates therefor.
Examples of cost reports designed for the agency described in this illustration
are as follows :
Cost Summary-AI1 Activities+uly
Under or
I Actual I Budget I (over) budget
1
r
Cost Summory-Divbion &July 1 Actual
Coat Summary-Activity &July
Budget
$17 895
2d0’2 83750
el,
se, =
74,710
-202,653
161,6#)
148 822
2%
12: 7%
4, 7ia
406
17,346
6,820
11,610
20% 663
-
1,233
38
28
10
1.166
Cost Reportdubactivity BI, Project (A)-July
I I I Actual Budget
Under or
(over)
' budget
Total costs. ............................................................... 1 18,093 I 17,995 I (98)
NOTE.-& stated on p 8 each manager of an organizational unit may exceed individual cost items in his
budget as long as he does io; exceed the total budgeted cost of the activity for which he is responsible. In this
instance the activity (B) is the branch and as long as the amount budgeted for the branch has not been exceeded
(see p. 25) it is within the authority of the branch manager to exceed the estimated cost of individual projects.
The lacithat the budget for this project has been exeeeded does not constitute a violation of the Antideficiency
Act and does not necessitate a revision in the budget. A revision in the budget should be made only when a
change is made in the plans for the project or when it becomes apparent that the estimates are not realistic.
Cost Report4ubactiuity B2, Project (B)--JuIy 1 Actual Budget
Under or
(over)
budget
$14
13
1
82
1
50
5 m
10
NOTE -In sddition to comparisons between the actual cost incurred and the amount budgeted it would be
desirable to show a com arison between the actual degree of com letion of the project and the degree Af completion
that should be expectezbp the incurrence of $20,129 of costs. &ere appropriate, comparisons on degree of completion
should be based on cumulative figures.
Cost Report-Subactivity B3, Project (C)-July
IALctual LBudget Under or
(over)
budget
26
Other finuncial reports
month. A summary report for the agency is as follows :
A report on the status of the agency's appropriation is prepared each
Summry Statement of Status of Appropriation-July 31
Appropriation-current fiscal year_ -____________~________________$_6 ,264, OOO. 00
Less unexpended appropriation at Jdy 31 :
Unapportioned appropriation . . . . . . . . . . . . . . . . . . . . $lW, OOO. 00
Unallotted apportionment_ __________________ L-4, 563, OOO. 00
Unobligsted allotments _________________________ 1,008,148.32
Unobligated balance of appropriation __________ 5,751,148.32
Unliquidated obligations (Undelivered orders) ___ 89,350.00
Unexpended balance of appropriation- ____-_____________5_,8_40_,4_98_.3_2_ ___
~~
Expended appropriation (accrual basis) __________________________ 423,501.68
The above information is utilized in the preparation of the Standard
Form 133, Report on Budget Status, which is required to be submitted
monthly to the Bureau of the Budget.
A report is also prepared on the status of the capital outlay budget
as of the end of each month or at more frequent intervals when necessary.
This report follows :
Status of Capital Outlay Budget at July 31
Aquisitions during month_ ______________-_____-$-8-,4_1_0 --_-____-__
Less : Amount financed from prior year appmpriation ___________ 388
Acquisitions financed from current appropriation ______________________
Equipmentonorderat end ofmollth_-_____-__-__-__-_-_----_-____-____-__
Balance of first quarter budget available ____________________________
Total capital outlay budget-first qaarter ___________________________
Capital outlay budget-remainder of year (unavailable this quarter) ____
Total capital outlay budget-cmrent year ___-_____________________
-
7-
$8,022
86,388
21,442
115,852
20,148
136, OOO
NorE.-The acquisition of ea ita1 property is the reRponFSbility of the Office of Administrative
Services which budgets k r these ncqulsitions. Where appropriate this type of report
should show a classification of'the type of property, the activity for which acquired or ordered
and the acquisitions made during the period compared with those budgeted for the same period.
In addition the agency also prepares other financial reports which are
not illustrated in this booklet, such as :
Statement of assets and liabilities.
Statement of sources and application of funds.
Reports required by central control agencies, such as Apportionment
and Reapportionment Schedule required by the Bureau of the
Budget and Inventory Report on Real Property required by the
General Services Administration.
27
PART III
General Comments
Administrative Costs
For properly designed, or redesigned, accounting systems, the use of
accrual accounting techmques should not result in additional administrative
costs.
If existing fund control and obligation accounting techniques, which
are quite elaborate in many instances, are left unchanged and additional
rocedures are superimposed to provide financial data on the accrual
&asis, an increase in administrative costs ail1 probably result. However,
this approach to making improvements in accounting systems to accomplish
the various objectives required is neither desirable nor appropriate.
A complete redesign of procedures to eliminate those that are costly and
zlnnecessary and to devise new ones that will produce all data needed is
required.
The methods described in this programillustrate a considerably more
simplified approach to fund control with the introduction of accrual
accounting and cost-based budgets than actually exists in many agencies.
In agencies where it is concluded to be desirable to provide in the
amounts approximately the s%mee xtent of financial analysis of operations
(by activity, organization, program, project, etc.) as is presently provided
by a system maintained on sn obligation basis, the kind of procedures
illustrated in this programshould result in no increase in administrative
Costs.
On the other hand, if an agency’s accounting system is materially
deficient to start with (e.g., does not have monetary property accounting,
does not provide complete and adequate data on costs of operations for
management use, etc.), the installation of procedures similar to those
illustrated will probabl? result in additiona-l administrative costs. However,
any such increase in costs will be more attributable to the correction
of existing deficiencies than to the use of accrual yeouting techniques.