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Closeout Procedures
Year End Checklist
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These procedures are written to assist you with closing out your books at year end and preparing for audit.
This chapter will cover:
An overview of the year end closeout process General information and guidance
Services GMS can provide to assist with year end
GMS Supplements that are designed to assist with year end Specific entries which you will need to prepare
Year end processing procedures
When Should You Close Your Books?
You will close your old year books through a series of closing runs. The first run should take place like any other month end run and normally is processed without any particular delay.
As a rule of thumb, we encourage all clients to be done with all closing activities within 30 to 60 days of the end of their fiscal year.
Accounts Payable at Year End
All vouchers for goods and services to be expensed in the old fiscal year need to have a voucher batch posted to the old year. GMS recommends that these costs be entered via voucher rather than a general journal entry that is reversed in the subsequent year. Following the normal procedure of the voucher process will help assure that the Accounts Payable Analysis generated in Accounts Payable Processing will tie to the AP General Ledger balance.
Payrolls that Cross Fiscal Years
If your pay period at the end of your fiscal year is split with some of the days worked in the old fiscal year and some days worked in the new fiscal year, a batch(es) should be entered for the days worked in the old fiscal year and a batch(es) should be entered for the days worked in the new fiscal year. If your agency charges any type of leave when earned, you will be able to process separate batches through Leave Processing in order to calculate leave balances as of the last day of your fiscal year.
Enter a timesheet batch for the days the employees worked in the old fiscal year using the last date of the fiscal year for the ending period of this timesheet batch.
Note: If an agency has multiple old fiscal year timesheet batches to process through year end leave accrual for the payroll that crosses fiscal years, the period ending date must be the same on all batches or the year end leave accrual will not calculate correctly.
If your agency does not charge any type of leave when earned, you will follow your normal leave processing procedures and select all timesheet batches for the pay period.
Note: If your agency does not accrue the cost of any leave when earned, however you have a maximum number of hours that can be carried over, the system can help you manage your leave balances at year end. Follow the instructions below:
In Tools\Cost Allocation Setup\Leave Allocation you should have the Accrue box checked with an Accrue Rate of 0% for the particular leave type. (This will make the accrual button available.) In Leave Balance Processing, select the Setup Leave Assumptions tab. Make sure that all classes have a P for prorated under the Prorated/Fixed column in the matrix. Then select True under Max, True under Class and enter the Max Hours that can be carried forward to the new fiscal year.
On the Leave Balance Processing tab, click on the Year End Leave Accrual button. If you do not normally have the same hours in each pay period, it will ask you how many hours in the pay period. Enter the total hours for this pay period, not just the hours worked in this timesheet batch. It will calculate the prorated earnings for the time worked in this timesheet batch, record leave taken during this time period and show the balance as of the last day of the fiscal year.
Note: At no time during this process for the split payroll should you click the Print Leave Report button. You must click Year End Leave Accrual for both batches. If you click the Print Leave Report button it will negate the special accrual you have done.
Remember to change the True to False under Max and Class and change the Max Hours to zero under Leave Balance Processing, Setup Leave Assumptions after the old fiscal year timesheet batch(es) have been processed via the Year End Leave Accrual Button.
Enter a timesheet batch for the days the employees worked in the new fiscal year using the first day of the fiscal year as the beginning of the pay period. When you are ready to process leave balances using this new fiscal year timesheet batch for this pay period, select that batch and click on Year
End Leave Accrual. The opening balance will be the ending balances from the previous leave balance report. Earnings will be calculated, the leave taken recorded and the balance shown as of the last day of the pay period. In the Setup Leave Assumptions, if the check box “Exceed earning hours in the employee master file” is not checked, it will take the earning amount in the employee file minus the amount of prorated earnings it gave each employee on the 1st timesheet batch and the balance is the amount earned on the 2nd timesheet batch.
If your agency does charge any type of leave when earned, you will follow the instructions below:
In Leave Balance Processing, select Setup Leave Assumptions tab. Make sure that all classes have a P for prorated under the Prorated/Fixed column in the matrix. If your personnel policies state that only a certain number of leave hours can be carried forward to the new fiscal year for all employees, you also need to select True under Max and Class and enter the Max Hours that can be carried forward to the new fiscal year.
Click on the Year End Leave Accrual button located on the Leave Balance Processing tab. If you do not normally have the same hours in each pay period, it will ask you how many hours in the pay period. Enter the total hours for this pay period, not just the hours worked in this timesheet batch. It will calculate the prorated earnings for the time worked in this timesheet batch, record leave taken during this time period and show the balance as of the last day of the fiscal year. At this point, if you want to run the Cost Allocation menu for the last month of your fiscal year, you will be able to choose the last day of the fiscal year to use in calculating the accrued leave.
Note: At no time during this process for the split payroll should you click the Print Leave Report button. You must click Year End Leave Accrual for both batches. If you click the Print Leave Report button it will negate the special accrual you have done.
If you set up the Max Hours to be carried forward at year end, remember to change the True to False under both Max and Class and change the Max Hours to zero under Leave Balance Processing, Setup Leave Assumptions after the old fiscal year timesheet batch(es) have been processed via the Year End Leave Accrual Button.
Enter a timesheet batch for the days the employees worked in the new fiscal year using the first day of the fiscal year as the beginning of the pay period. When you are ready to process leave balances using this new fiscal year timesheet batch for this pay period, select that batch and click on Year End Leave Accrual. The opening balance will be the ending balances from the previous leave balance report. Earnings will be calculated, the leave taken recorded and the balance shown as of the last day of the pay period. On the Setup Leave Assumptions tab, if the check box “Exceed earning hours in the employee master file” is not checked, it will take the earning amount in the employee file minus the amount of prorated earnings it gave each employee on the 1st timesheet batch and the balance is the amount earned on the 2nd timesheet batch.
Note: Once you have completed the Year End leave accrual activities, you may need to go back and re-print the Leave Balance Report by site or department for the period ending at the end of the previous fiscal year. Should that be the case, select Prior Leave Balance Reports tab, select the order in which you would like the report sorted and choose the desired ending period.
When you process payroll, both timesheet batches for this pay period will be available for selection. The stubs will reflect the total of leave earned and taken from the two timesheet batches and the balances as of the last day of the pay period.
Note: If your agency normally earns leave on a fixed basis, don’t forget to go back to Leave Balance Processing, Setup Leave Assumptions tab and change P for prorated to F for fixed after you have finished processing all batches through the year end accrual.
Note: You will need to create a general journal entry debiting Salaries and crediting your accrued salaries liability account for the amount represented by the timesheet batch posted to the old fiscal year. This entry will subsequently need to be reversed in the new fiscal year.
Running Month End in the New Year
There is no reason for you to delay processing month end in the new year as you will need to prepare reports in order to meet internal and external reporting requirements. The only question will be whether you have opening balances entered.
When you need to run month end in the new fiscal year, whether that is in the middle of your first month of the fiscal year or the end of the first month, there are certain steps you need to do.
Note: It is very important that any employee doing data entry for the old or new fiscal year pay special attention to the posting period they have selected to make sure it is posted to the correct month and fiscal year.
When rolling forward R/E Prior Year, if you select a project/element to roll forward that did not have a budget or prior year in the old fiscal year, we will look at the name of the project or element that is in the master file and use that as the new budget name.
If, after preparing financial reports in the new year, additional adjustments, accruals or closeout entries for the old fiscal year must be entered and Financial Reports processed in the old year, then it is necessary to click on the Year End menu item and Reverse Roll Forward the items previously rolled forward. Follow the instructions in Help/General Ledger/Year End/Checklists for Roll Forward and Reverse Roll Forward.
GMS Year End Closeout Services
GMS offers system users a variety of services to assist in closing out the fiscal year and preparing for the audit. In addition, special training is offered each year at the GMS Annual Conference.
To schedule special year end services, please contact the GMS Maryland Office.
Concentrated Year-End Telephone Assistance
A member of the GMS Service Staff will assist and train you on year end closing activities over the telephone. Support may include reconciliation of accounts, assistance with running procedures, analyzing revenue recognitions, closing of allocation accounts as well as other activities needed to help you prepare for audit.
Normally, this activity takes place during a prescheduled week during which time periodic phone conversations occur.
The amount of time varies depending upon the amount of support and assistance required. The range can vary from 1-2 hours to close out the cost allocation pools and control accounts and up to 10-20 hours for reconciliation of asset and liability accounts and closing projects.
Scheduling: We prefer to schedule appointment weeks one month prior to anticipated closing.
Cost: Our prevailing hourly rate with authorization up to an agreed amount - normally 10 - 20 hours.
Supplements to Assist in Year End Closeout
#357 Fixed Asset Inventory
#362 Cash Receipt History
#384 Audit Check - Invoice Sampler
#385 Schedule of Federal Assistance
#398 Year End Closing Entries
#402 FASB 117 Worksheets
#415 GASB 34 Worksheets
#419 Audit Preparation Tools
Introduction
Closing out the fiscal year is a process which will involve closing month end several times. The result will be final financial statements for the year and appropriate supporting schedules for your auditor.
For purposes of these instructions, we have divided closing activities into several stages.
This is your normal month end run. Although it is your last month in the fiscal year, we encourage you to run this on the same schedule as you would any other month so that you can meet your standard internal and external reporting requirements. However do not click on the Month End button at this time.
These month end runs are used to handle any number of issues. General examples include:
1. Making certain that all asset and liability accounts are properly reconciled and documented by supporting schedules i.e. bank reconciliations, accounts payable listings, inventories and the like.
The "final run" may not be the last time you do month end processing of the fiscal year, as subsequent events (such as audit adjustments) may require another run. This is called the "final run" because it is the run in which the control accounts (salaries, fringe benefits, indirect costs) are in their final status and are ready to be closed. All adjustments have been made to projects and they are also ready for year end activities. It involves:
General Rules and Guidance
You will be processing month end for the final month of your fiscal year several times. For example, there is not a 13th month, so you will be processing the same start and end period several times.
Make sure you have the latest reports filed. Note: If you use the Year End Closing Entries supplement you will not manually prepare any of the following entries.
Introduction
As discussed previously, your final run will require you to prepare a series of entries not ordinarily developed each month. For this reason, we have tried to provide you with step by step guidance here.
"Penny" differences between the pools and amounts allocated throughout the year should be adjusted in the following general journal entries. This nominal amount should be coded to a miscellaneous expense account in your Current Year Unrestricted element (agency account).
When you are ready to enter the journal entries to close the cost allocation accounts and revenue recognition entries, click on the Year End menu item and select the Year End GJ tab. This will allow you to code to the control accounts which you are blocked from doing in the regular General Journal batches.
Formally Recording Changes to Leave Liabilities
This step applies to those agencies who accrue and expense annual and/or sick leave using the Leave Pool. It also applies to those agencies who formally record compensatory time.
Throughout the year programs have been charged automatically for accrued annual, sick and compensatory leave (consistent with your organization's policies). This accrual has been identified under the Reconciling Items on your Balance Sheet. This was necessary in order for your Balance Sheet to balance since no formal entry is made to your appropriate liability accounts during the year.
This entry will record this liability. Debit 997000 50000 Salaries
Credit Accrued Annual Leave Acct-997000 _____
Credit Accrued Comp Leave Acct- 997000 _ ____
Closing Cost Allocation Accounts and Control Accounts
A series of journal entries needs to be prepared to formally close the cost allocation accounts and control accounts including salaries, fringe benefits, indirect costs and any special allocation pools in the General Ledger. These entries are prepared using the YTD Cost Allocation Summary, Fringe Benefit Analysis and Rate Computation, Indirect Cost Rate Computation and Analysis and if applicable, the YTD Service Unit, Shift Indirect (after shifting so it matches the R&E reports), Special Allocation Summary or Cost Allocation Locks. If Supplement #403 Dual Indirect Cost Pool is used, the Common Cost Rate Computation and Analysis and M&G Cost Rate Computation and Analysis will be used instead of the Indirect Cost Rate Computation and Analysis.
First, entries should be prepared to close individual Fringe Benefit items shown on the Fringe Benefit Analysis and Rate Computation to the 997000 50500 Fringe Benefit Control Account.
Debit 997000 50500 Fringe Benefits
Credit 997000 50600 XXXXXXXXXX
Credit 997000 50700 XXXXXXXXXX
Credit 997000 50800 XXXXXXXXXX
Debit 997000 59700 Indirect Costs
Credit 997000 50000 XXXXXXXXXX
Credit 997000 50500 XXXXXXXXXX
Credit 997000 _______
C
Note: Salaries and fringe benefits charged to the Indirect Cost Pool are transferred in the General Ledger with Current Detail as a credit to the Salary Control Account (997000 50000) and Fringe Benefit Control Account (997000 50500). This allows the debit to the Indirect Cost Control Account (997000 59700) to equal the total indirect costs allocated.
If multiple indirect elements are used, you may do a separate journal entry for each indirect element (999000, 999100, etc.) or combine each expense code amount for all elements and use the element 997000 for the credit entry. Either method will accomplish closing out the indirect accounts in the General Ledger with Current Detail.
If you use Supplement #403 Dual Indirect Cost Pool which includes Common Costs and Management and General Costs (M&G), instead of using the above instructions, follow the
instructions below. Prepare the following entries to close individual Common Cost items shown on the Common Cost Rate Computation and Analysis to the 997000 59900 Common Cost Control Account.
Debit 997000 59900 Common Costs
Credit 997000 50000
Credit 997000 50500
Credit
997000 _____
Note: Salaries and fringe benefits charged to the Common Cost Pool are transferred in the General Ledger with Current Detail as a credit to the Salary Control Account (997000 50000) and Fringe Benefit Control Account (997000 50500). This allows the debit to the Common Cost Control Account (997000 59900) to equal the total common costs allocated.
If multiple common cost elements are used, you may do a separate journal entry for each element (999000-999400) or combine each expense code amount for all elements and use the element 997000 for the credit entry. Either method will accomplish closing out the common cost accounts in the General Ledger with Current Detail.
As stated above, if you use Supplement 403 Dual Indirect Cost Pool, entries should be prepared to close individual Management & General (M&G) items shown on the M&G Cost Rate Computation and Analysis to the 997000 59700 M&G Control Account.
Debit 997000 59700 M&G
Credit 997000 50000 XXXXXXXXXX
Credit 997000 50500 XXXXXXXXXX
Credit
997000 _____ XXXXXXXXXX
Note: Salaries and fringe benefits charged to the M&G Pool are transferred in the General Ledger with Current Detail as a credit to the Salary Control Account (997000 50000) and Fringe Benefit Control Account (997000 50500). This allows the debit to the M&G Indirect Cost Control Account (997000 59700) to equal the total M&G indirect costs allocated.
If multiple M&G indirect elements are used, you may do a separate journal entry for each element (999500-999900) or combine each expense code amount for all elements and use the element 997000 for the credit entry. Either method will accomplish closing out the M&G accounts in the General Ledger with Current Detail.
Third, entries should be made to close the control accounts to projects in the General Ledger. Separate entries should be made for salaries, fringe benefits, and indirect costs as illustrated below.
For Salaries:
Debit
997000 3XXXX Project A
997000 3XXXX Project B
997000 50000 Indirect Salaries
Credit 997000 50000 Salaries
For Fringe Benefits:
Debit
997000 3XXXX Project A
997000 3XXXX Project B
997000 50500 Indirect Fringe
Credit 997000 50500 Benefits
For Indirect Costs:
Debit
997000 3XXXX Project A
997000 3XXXX Project B
Credit 997000 59700 Indirect
If you use Supplement #403 Dual Indirect Cost Pool which includes Common Costs and Management and General Costs (M&G), instead of using the above instructions, follow the instructions below.
Next, entries should be made to close the control accounts to projects in the General Ledger. Separate entries should be made for salaries, fringe benefits, common costs and M&G as illustrated below.
For Salaries:
Debit 997000 3XXXX Project A
997000 3XXXX Project B
997000 50000 Common Cost Salaries
997000 50000 M&G Indirect Salaries
Credit 997000 50000 Salaries
For Fringe Benefits:
Debit
997000 3XXXX Project A
997000 3XXXX Project B
997000 50500 Common Cost Fringe
997000 50500 M&G Indirect Fringe
Credit 997000 50500 Benefits
For Common Costs:
Debit
997000 3XXXX Project A
997000 3XXXX Project B
997000 59900 M&G Indirect share of Common Costs
Credit 997000 59900 Common Costs
For M&G Indirect Costs:
Debit
997000 3XXXX Project A
997000 3XXXX Project B
Credit 997000 59700 M&G Indirect
Debit 997000 3XXXX Project A
997000 3XXXX Project B
Credit
997000 3XXXX Pool 1 Project
Debit 997000 3XXXX Project C
997000 3XXXX Project D
Credit
997000 3XXXX Pool 2 Project
Fifth, if Supplement 389 -Cost Allocation Locks is used, an additional general journal entry should be prepared after all control account entries have been completed. However, if amounts locked in an element are moved to an element within the same project, no journal entry is necessary. To prepare this entry, print out the Cost Allocation Lock Matrix or use the final matrix printed during your last month end processing. The amounts "moved" should be used as the debits and credits for this entry. For example, if the matrix showed -
Project 30000-Element 300100
Locked 50000 @ $20,000 moved $200 to Project 31000 - Element 310000 Locked 50500 @ $ 3,000 moved $ 30 to Project 31000 - Element 310000
Locked 59700 @ $ 5,000 moved $110 to Project 31000 - Element 310000
Your entry should be prepared like - Debit 997000 31000 $340.00
Credit 997000 30000 $340.00
Even though the matrix reflects amounts for each element's locked in transaction codes, the entry can be made for the total per project. One entry can be made for all locked in projects, titled "to post cost allocation locks to project equity accounts".
At this point General Ledger Balances for all 30000 accounts should agree with Project Balances on the Balance Sheet.
Revenue Recognitions for Governmental Non-Profit Agencies
Operating under Accounting Standards Established by the Governmental Accounting Standards Board (GASB)
Perhaps the single most important "final close" issue is revenue recognition - determining earned federal, state, local and other revenues.
Before adjusting for earned revenue, you need to know several things about each project. Some of these include:
Cost Reimbursement Contracts
Earned revenue is based on actual allowable expenses, if it does not exceed the contract award. To recognize this revenue, typically a receivable, deferred revenue or due to grantor entry will be made. Posting final entries should result in a zero project balance.
Performance Based Contracts
Earned revenue is based on the number of units provided times the contracted unit cost, if it does not exceed the contract award. Typically you will have to set up a receivable for the units of service provided in the last month or quarter of the fiscal year. In most cases, these projects will have a debit or credit balance reflecting the excess earned revenue or expense.
If the contract ended during the agency fiscal year, you should normally close the project balance to the Unrestricted Fund Balance. However, if management's policy or practice is to restrict this balance to be used only for this program, it should be closed to a restricted fund balance account.
If the contract did not end during the agency fiscal year, we recommend that you do not close the project balance for internal balance sheet purposes. The external balance sheet included in the audit report would, however, include all project balances as part of the agency fund balance, either restricted or unrestricted.
Fixed Price Contracts
Earned revenue is based on the completion of the product or service agreed upon. If completed, a receivable would be set up for the amount due based on the contract award. If the terms of the agreement have not been fulfilled, it may be necessary to establish the percentage of completion in order to determine the receivable or deferred revenue amount. We recommend that you consult with your auditor if this percentage of completion needs to be established.
If there is excess revenue or expense after recognizing earned revenue on the completed project, it would normally be closed to the agency fund balance.
If the contract did not end during the agency fiscal year, we recommend that you do not close the project balance for internal balance sheet purposes.
Exhibits 1 - 5 should be used to assist you with these revenue recognition entries. THESE FORMS ARE AVAILABLE ON OUR WEBSITE IN PDF FORMAT. You should fill these out before making any of these entries.
Exhibit 1: Transfers from Current Year Unrestricted for Cash Match or Project Overruns
This should be used to identify any local unrestricted amounts to be transferred into projects to meet cash match requirements or to subsidize unrecoverable project overruns.
Exhibit 2: Grant and Contract Receivables
This should be used to identify any accounts receivable earned by any projects.
Exhibit 3: Deferred Revenue
This is used to identify project receipts which must be deferred (payments from funding sources which have not been earned.)
Exhibit 4: Due to Grantor Agencies
Use this form to identify excess project revenue which must be returned to funding sources. This is normally used for closed projects.
Exhibit 5: Close Projects to Fund Balance
Use this form to identify excess project revenue which may be transferred to the fund balance. This would be appropriate for fixed price and performance based projects where excess revenues and expenditures exist. Also include the Current Year Unrestricted (agency account) balance on this form.
Upon completion of these forms, one general journal entry should be prepared for each schedule. Instructions for doing so are shown on the schedules.
These schedules serve a dual purpose of assisting you with the preparation of revenue recognition journal entries and serving as an audit schedule to support certain accounts. They can also be used to assist with applicable reversing entries in the new year.
Revenue Recognition for Not-For-Profit Agencies
Operating under Accounting Standards Established by the Financial Accounting Standards Board (FASB)
Perhaps the single most important "final close" issue is revenue recognition - determining earned federal, state, local and other revenues and the amount of change in permanently restricted net assets, temporarily restricted net assets and unrestricted net assets for the fiscal year.
In FASB Statement 116, Accounting for Contributions Received and Contributions Made, Appendix B, Basis for Conclusions, paragraph 80 states:
"The Board noted, however, that certain promises become unconditional in stages because they are dependent on several or a series of conditions-milestones-rather than a single future and uncertain event and are recognized in increments as each of the conditions is met. Similarly, other promises are conditioned on promises incurring certain qualifying expenses (or costs). Those promises become unconditional are recognized to the extent that the expenses are incurred. The accounting for that type of conditional promise results in recognition of assets and revenues as allowable costs are incurred, which resembles contractor accounting for government cost plus fixed fee arrangements where the contractor's right to partial payment becomes unconditional in advance of delivery of a finished product."
Based on the above paragraph, the recognition of earned revenue at the end of a fiscal year for cost reimbursement, performance based and fixed price contracts does not vary from previous practices. However, the terminology used in the sample audit report formats as illustrated in FASB Statement No. 117, Financial Statements of Not-for-Profit Organizations has changed slightly. For example, Refundable Advances is used rather than Deferred Revenue for grants and contracts and Net Assets are used rather than fund balances. Another change is the classification of grant/contract revenue types as contributions or fees.
It appears that most cost reimbursement grant and contract positive balances (excess revenue over expense) will be closed to refundable advances for projects still in process or grants payable for projects that have closed. These balances contain restrictions as to their use and conditions as to their recognition as revenue.
Temporarily Restricted Net Assets then consists of excess revenue over expense which is restricted as to its use, but for which there is not condition inhibiting its retention by the grantor assuming funds will be used according to the restriction. An example may be project income received for a particular program that is unspent but allowed to be used in a future period for that particular program.
Before adjusting for earned revenue, you need to know several things about each project. Some of these include:
Cost Reimbursement Grants and Contracts
Earned revenue is based on actual allowable expenses, up to the award and is classified as a contribution (auditors may classify these contributions separately, such as governmental contributions). To adjust revenue, typically a contribution receivable, grants payable or refundable advance off-setting entry will be made. Posting final entries should result in a zero project balance.
Performance Based Contracts
Earned revenue is normally based on the number of units provided times the fee per unit up to the award. This revenue is classified as fees (auditors may classify these fees separately, such as governmental fees). Typically you will have to set up a receivable for the un-reimbursed units of
service provided in the last month or quarter of the fiscal year. In most cases, these projects will have a debit or credit balance reflecting the excess earned revenue or expense.
You would normally close the project balance to Unrestricted Net Assets unless program guidelines or contract specifications require that excess revenue over expense be restricted to be used for this functional program area only. In that case, it should be closed to Temporarily Restricted Net Assets. Also, if management's policy or practice is to restrict this balance to be used only for this program, it should be closed to Unrestricted-designated Net Assets.
Fixed Price Contracts
Earned revenue is based on the completion of the product or service agreed upon and is classified as fees (auditors may include these with other governmental fees). If completed, a receivable would be set up for the amount due based on the contract award. If the terms of the agreement have not been fulfilled, it may be necessary to establish the percentage of completion in order to determine the earned revenue. We recommend that you consult with your auditor if this percentage of completion needs to be established.
If there is excess revenue or expense after recognizing earned revenue on the completed project, it would normally be closed to unrestricted net assets.
If the contract did not end during the agency fiscal year, you may choose not to close the project balance to a net asset account for internal balance sheet purposes.
Exhibits 1 - 7 should be used to assist you with these revenue recognition entries. THESE FORMS CAN BE FOUND ON OUR WEBSITE IN PDF FORMAT. You should fill these out before making any of these entries.
Exhibit 1: Transfers from Current Year Unrestricted for Cash Match or Project Overruns
This should be used to identify any local unrestricted amounts to be transferred into projects to meet cash match requirements or to subsidize unrecoverable project overruns.
Exhibit 2: Governmental Contributions Receivable
This should be used to identify any accounts receivable for governmental contributions.
Exhibit 3: Governmental Fees Receivable
This should be used to identify any accounts receivable for governmental fees.
Exhibit 4: Grantor Payables
Use this form to identify excess project revenue which must be returned to funding sources. This is normally used for closed projects.
Exhibit 5: Refundable Advances
Use this form to identify excess project revenue for programs that did not end on the fiscal year.
Exhibit 6: Record change to Temporarily Restricted Net Assets
This is used to identify the excess receipts over expenditures of certain types of revenue
such as program income and local government contributions that were received for a specific program without a time limitation. These are closed to temporarily restricted net assets.
Exhibit 7: Record change to Unrestricted Net Assets
Use this form to identify excess unrestricted contributions or fees which may be transferred to unrestricted net assets. This would be appropriate for fixed price and performance based projects and other unrestricted contributions where excess revenues and expenditures exist. Also include the Current Year Unrestricted (agency account) balance on this form.
Upon completion of these forms, one general journal entry should be prepared for each schedule. Instructions for doing so are shown on the schedules.
These schedules serve a dual purpose of assisting you with the preparation of revenue recognition journal entries and serving as an audit schedule to support certain accounts. They can also be used to assist with applicable reversing entries in the new year.
Recommended Terminology Changes for Chart of Accounts for Not-For-Profit Agencies
In the following example, the code numbers may be changed appropriately. Assets
12000 Governmental Contributions receivable 12100 Governmental Fees receivable
Liabilities
25000 Refundable advances (replaces deferred revenue for contributions) Net Assets
Example 1: Detail Form
39000 Temporarily restricted
39100 Unrestricted-available
39200 Unrestricted-designated
39300 Unrestricted-designated for long-term investment 39400 Unrestricted-land, buildings, and equipment 39500 Permanently restricted - endowment
Example 2: Summary From
39000 Temporarily restricted net assets
39100 Unrestricted net assets
39200 Unrestricted -land, buildings, and equipment 39600 Permanently restricted net assets
Revenues
We recommend that each revenue code be titled as a contribution or a fee. For example: 40000 Headstart contributions
40100 USDA fees
40200 Matching Contributions
40300 In-kind Contributions
Note: It is recommended that contributions, fees and other types of revenue not be classified as temporarily restricted, unrestricted or permanently restricted when received. These designations can be made at year end based on contractual agreements.
Processing Procedures for Year End
Follow these Monthly processing instructions when running your final run:
NOTE: When printing the Balance Sheet, check the Year End box.
_ database and
follow the instructions in Help\General Ledger\Year End\Saving a Copy of Your Final Year End Database
General Ledger\Year End\Checklists for Roll Forward and Reverse Roll Forward for detailed instructions.
Note: During the Roll Forward R/E Prior Year step the software will automatically make a copy of the cost allocation tables. Should you have forgotten to previously click on the Month End button in Financial Reports to advance the month, the system will change the current period to the first month of the new fiscal year. If you had already advanced the month it will not be advanced again.
This chapter will cover:
An overview of the year end closeout process General information and guidance
Services GMS can provide to assist with year end
GMS Supplements that are designed to assist with year end Specific entries which you will need to prepare
Year end processing procedures
When Should You Close Your Books?
You will close your old year books through a series of closing runs. The first run should take place like any other month end run and normally is processed without any particular delay.
As a rule of thumb, we encourage all clients to be done with all closing activities within 30 to 60 days of the end of their fiscal year.
Accounts Payable at Year End
All vouchers for goods and services to be expensed in the old fiscal year need to have a voucher batch posted to the old year. GMS recommends that these costs be entered via voucher rather than a general journal entry that is reversed in the subsequent year. Following the normal procedure of the voucher process will help assure that the Accounts Payable Analysis generated in Accounts Payable Processing will tie to the AP General Ledger balance.
Payrolls that Cross Fiscal Years
If your pay period at the end of your fiscal year is split with some of the days worked in the old fiscal year and some days worked in the new fiscal year, a batch(es) should be entered for the days worked in the old fiscal year and a batch(es) should be entered for the days worked in the new fiscal year. If your agency charges any type of leave when earned, you will be able to process separate batches through Leave Processing in order to calculate leave balances as of the last day of your fiscal year.
Enter a timesheet batch for the days the employees worked in the old fiscal year using the last date of the fiscal year for the ending period of this timesheet batch.
Note: If an agency has multiple old fiscal year timesheet batches to process through year end leave accrual for the payroll that crosses fiscal years, the period ending date must be the same on all batches or the year end leave accrual will not calculate correctly.
If your agency does not charge any type of leave when earned, you will follow your normal leave processing procedures and select all timesheet batches for the pay period.
Note: If your agency does not accrue the cost of any leave when earned, however you have a maximum number of hours that can be carried over, the system can help you manage your leave balances at year end. Follow the instructions below:
In Tools\Cost Allocation Setup\Leave Allocation you should have the Accrue box checked with an Accrue Rate of 0% for the particular leave type. (This will make the accrual button available.) In Leave Balance Processing, select the Setup Leave Assumptions tab. Make sure that all classes have a P for prorated under the Prorated/Fixed column in the matrix. Then select True under Max, True under Class and enter the Max Hours that can be carried forward to the new fiscal year.
On the Leave Balance Processing tab, click on the Year End Leave Accrual button. If you do not normally have the same hours in each pay period, it will ask you how many hours in the pay period. Enter the total hours for this pay period, not just the hours worked in this timesheet batch. It will calculate the prorated earnings for the time worked in this timesheet batch, record leave taken during this time period and show the balance as of the last day of the fiscal year.
Note: At no time during this process for the split payroll should you click the Print Leave Report button. You must click Year End Leave Accrual for both batches. If you click the Print Leave Report button it will negate the special accrual you have done.
Remember to change the True to False under Max and Class and change the Max Hours to zero under Leave Balance Processing, Setup Leave Assumptions after the old fiscal year timesheet batch(es) have been processed via the Year End Leave Accrual Button.
Enter a timesheet batch for the days the employees worked in the new fiscal year using the first day of the fiscal year as the beginning of the pay period. When you are ready to process leave balances using this new fiscal year timesheet batch for this pay period, select that batch and click on Year
End Leave Accrual. The opening balance will be the ending balances from the previous leave balance report. Earnings will be calculated, the leave taken recorded and the balance shown as of the last day of the pay period. In the Setup Leave Assumptions, if the check box “Exceed earning hours in the employee master file” is not checked, it will take the earning amount in the employee file minus the amount of prorated earnings it gave each employee on the 1st timesheet batch and the balance is the amount earned on the 2nd timesheet batch.
If your agency does charge any type of leave when earned, you will follow the instructions below:
In Leave Balance Processing, select Setup Leave Assumptions tab. Make sure that all classes have a P for prorated under the Prorated/Fixed column in the matrix. If your personnel policies state that only a certain number of leave hours can be carried forward to the new fiscal year for all employees, you also need to select True under Max and Class and enter the Max Hours that can be carried forward to the new fiscal year.
Click on the Year End Leave Accrual button located on the Leave Balance Processing tab. If you do not normally have the same hours in each pay period, it will ask you how many hours in the pay period. Enter the total hours for this pay period, not just the hours worked in this timesheet batch. It will calculate the prorated earnings for the time worked in this timesheet batch, record leave taken during this time period and show the balance as of the last day of the fiscal year. At this point, if you want to run the Cost Allocation menu for the last month of your fiscal year, you will be able to choose the last day of the fiscal year to use in calculating the accrued leave.
Note: At no time during this process for the split payroll should you click the Print Leave Report button. You must click Year End Leave Accrual for both batches. If you click the Print Leave Report button it will negate the special accrual you have done.
If you set up the Max Hours to be carried forward at year end, remember to change the True to False under both Max and Class and change the Max Hours to zero under Leave Balance Processing, Setup Leave Assumptions after the old fiscal year timesheet batch(es) have been processed via the Year End Leave Accrual Button.
Enter a timesheet batch for the days the employees worked in the new fiscal year using the first day of the fiscal year as the beginning of the pay period. When you are ready to process leave balances using this new fiscal year timesheet batch for this pay period, select that batch and click on Year End Leave Accrual. The opening balance will be the ending balances from the previous leave balance report. Earnings will be calculated, the leave taken recorded and the balance shown as of the last day of the pay period. On the Setup Leave Assumptions tab, if the check box “Exceed earning hours in the employee master file” is not checked, it will take the earning amount in the employee file minus the amount of prorated earnings it gave each employee on the 1st timesheet batch and the balance is the amount earned on the 2nd timesheet batch.
Note: Once you have completed the Year End leave accrual activities, you may need to go back and re-print the Leave Balance Report by site or department for the period ending at the end of the previous fiscal year. Should that be the case, select Prior Leave Balance Reports tab, select the order in which you would like the report sorted and choose the desired ending period.
When you process payroll, both timesheet batches for this pay period will be available for selection. The stubs will reflect the total of leave earned and taken from the two timesheet batches and the balances as of the last day of the pay period.
Note: If your agency normally earns leave on a fixed basis, don’t forget to go back to Leave Balance Processing, Setup Leave Assumptions tab and change P for prorated to F for fixed after you have finished processing all batches through the year end accrual.
Note: You will need to create a general journal entry debiting Salaries and crediting your accrued salaries liability account for the amount represented by the timesheet batch posted to the old fiscal year. This entry will subsequently need to be reversed in the new fiscal year.
Running Month End in the New Year
There is no reason for you to delay processing month end in the new year as you will need to prepare reports in order to meet internal and external reporting requirements. The only question will be whether you have opening balances entered.
When you need to run month end in the new fiscal year, whether that is in the middle of your first month of the fiscal year or the end of the first month, there are certain steps you need to do.
- To roll forward (or reverse roll forward), follow the instructions in Help/General Ledger/Year End/Checklists for Roll Forward and Reverse Roll Forward.
- We recommend that you roll forward your revenues and expenses for the projects/elements that did not end on or during your old fiscal year. Rolling forward R/E Prior year performs several steps:
- Budgets and prior year amounts will be rolled forward into the new fiscal year for all of the projects/program elements that were selected. Make sure you do not enter any new year budgets until you have rolled forward the R/E Prior Year.
- Under Tools, Organization, Organizational Info the Start Period, Fiscal Year and Ending Period will be changed to the appropriate dates for the new fiscal year.
- The ending leave liability of the old fiscal year will be posted as the new fiscal year opening liability if your agency charges leave when it is earned.
- A copy of the old fiscal year pay codes will be saved in tblPayCodePrior.
- Leave allocation setup and base definition will be saved in tblLeaveAllocationPrior
- Fringe allocation setup and base definition will be saved in tblFringeAllocationPrior.
- Indirect costs allocation setup and base definition will be saved in tblIndirectCostPrior.
Note: It is very important that any employee doing data entry for the old or new fiscal year pay special attention to the posting period they have selected to make sure it is posted to the correct month and fiscal year.
When rolling forward R/E Prior Year, if you select a project/element to roll forward that did not have a budget or prior year in the old fiscal year, we will look at the name of the project or element that is in the master file and use that as the new budget name.
- It is recommended that you roll forward your General Ledger balances at the same
- After rolling forward or reversing the roll forward, make sure you run all steps on the cost allocation menu, or if desired click on the Post All Allocations button before printing any Financial Reports.
If, after preparing financial reports in the new year, additional adjustments, accruals or closeout entries for the old fiscal year must be entered and Financial Reports processed in the old year, then it is necessary to click on the Year End menu item and Reverse Roll Forward the items previously rolled forward. Follow the instructions in Help/General Ledger/Year End/Checklists for Roll Forward and Reverse Roll Forward.
GMS Year End Closeout Services
GMS offers system users a variety of services to assist in closing out the fiscal year and preparing for the audit. In addition, special training is offered each year at the GMS Annual Conference.
To schedule special year end services, please contact the GMS Maryland Office.
Concentrated Year-End Telephone Assistance
A member of the GMS Service Staff will assist and train you on year end closing activities over the telephone. Support may include reconciliation of accounts, assistance with running procedures, analyzing revenue recognitions, closing of allocation accounts as well as other activities needed to help you prepare for audit.
Normally, this activity takes place during a prescheduled week during which time periodic phone conversations occur.
The amount of time varies depending upon the amount of support and assistance required. The range can vary from 1-2 hours to close out the cost allocation pools and control accounts and up to 10-20 hours for reconciliation of asset and liability accounts and closing projects.
Scheduling: We prefer to schedule appointment weeks one month prior to anticipated closing.
Cost: Our prevailing hourly rate with authorization up to an agreed amount - normally 10 - 20 hours.
Supplements to Assist in Year End Closeout
#357 Fixed Asset Inventory
#362 Cash Receipt History
#384 Audit Check - Invoice Sampler
#385 Schedule of Federal Assistance
#398 Year End Closing Entries
#402 FASB 117 Worksheets
#415 GASB 34 Worksheets
#419 Audit Preparation Tools
Introduction
Closing out the fiscal year is a process which will involve closing month end several times. The result will be final financial statements for the year and appropriate supporting schedules for your auditor.
For purposes of these instructions, we have divided closing activities into several stages.
- First Run
This is your normal month end run. Although it is your last month in the fiscal year, we encourage you to run this on the same schedule as you would any other month so that you can meet your standard internal and external reporting requirements. However do not click on the Month End button at this time.
- Adjusting Runs
These month end runs are used to handle any number of issues. General examples include:
1. Making certain that all asset and liability accounts are properly reconciled and documented by supporting schedules i.e. bank reconciliations, accounts payable listings, inventories and the like.
- Accruing expenses at year end either through the entry of additional vouchers or in certain instances through journal entries.
- Recording non-grant and contract receivables which may not have been recorded during the year (receivables for contracts and grants will be handled in the "final run").
- Final Run
The "final run" may not be the last time you do month end processing of the fiscal year, as subsequent events (such as audit adjustments) may require another run. This is called the "final run" because it is the run in which the control accounts (salaries, fringe benefits, indirect costs) are in their final status and are ready to be closed. All adjustments have been made to projects and they are also ready for year end activities. It involves:
- formally recording any adjustments to accrued leave liabilities which were expensed to programs throughout the year
- formally closing control accounts in the General Ledger based upon final end of year cost allocation amounts
- recording revenue recognitions for state and federal grants/contracts, local match and unrestricted contributions and/or receipts and adjusting accounts receivable and deferred revenue amounts accordingly
- transferring the balance of applicable current year operations (surplus or deficit) to the agency's unrestricted general fund balance
General Rules and Guidance
You will be processing month end for the final month of your fiscal year several times. For example, there is not a 13th month, so you will be processing the same start and end period several times.
Make sure you have the latest reports filed. Note: If you use the Year End Closing Entries supplement you will not manually prepare any of the following entries.
Introduction
As discussed previously, your final run will require you to prepare a series of entries not ordinarily developed each month. For this reason, we have tried to provide you with step by step guidance here.
"Penny" differences between the pools and amounts allocated throughout the year should be adjusted in the following general journal entries. This nominal amount should be coded to a miscellaneous expense account in your Current Year Unrestricted element (agency account).
When you are ready to enter the journal entries to close the cost allocation accounts and revenue recognition entries, click on the Year End menu item and select the Year End GJ tab. This will allow you to code to the control accounts which you are blocked from doing in the regular General Journal batches.
Formally Recording Changes to Leave Liabilities
This step applies to those agencies who accrue and expense annual and/or sick leave using the Leave Pool. It also applies to those agencies who formally record compensatory time.
Throughout the year programs have been charged automatically for accrued annual, sick and compensatory leave (consistent with your organization's policies). This accrual has been identified under the Reconciling Items on your Balance Sheet. This was necessary in order for your Balance Sheet to balance since no formal entry is made to your appropriate liability accounts during the year.
This entry will record this liability. Debit 997000 50000 Salaries
Credit Accrued Annual Leave Acct-997000 _____
Credit Accrued Comp Leave Acct- 997000 _ ____
- The accrued leave accounts are 20000 liability accounts.
- The adjustment for sick leave liability can also be included if applicable.
- This entry illustrates an increase in leave liabilities at year end. It could be the reverse.
- The amount coded to 997000 50000 should equal the difference between the Total Salary column on the Year-to-date Cost Allocation Summary and the balance forward of the 50000 salary account in the General Ledger with Current Detail.
- The amount coded to accrued annual leave should be the difference between the Current Liability under Section 2 of the Leave Rate Computation and Analysis (Total page) and the prior year amount on the General Ledger liability account for accrued annual leave. This should equal the amount shown next to AL Liability Change on the Leave Rate Computation and Analysis in Section 2 (Total page).
- The amount coded to accrued sick leave should be the difference between the Current Liability under Section 2 of the Leave Rate Computation and Analysis and the prior year amount on the General Ledger liability account for accrued sick leave. This should equal the amount shown next to SL Liability Change on the Leave Rate Computation and Analysis (if applicable) under Section 2.
- If Compensatory time is recorded on the books, the amount coded to the Accrued Comp Leave account should be the difference between the Comp Leave Accrual for all classes of employees on the last page of the Leave Rate Computation and Analysis and the prior year amount on the General Ledger liability account for Comp. Since comp time is charged directly to a particular program when earned, the rate of pay may have been less than current salary. The end of the year comp leave balance is calculated on current salary. Therefore, the difference between comp time earned and taken on the Leave Rate Computation and Analysis may not equal the change to the accrued comp liability account. This difference should be coded to the miscellaneous expense account in the Current Year Unrestricted element (agency account).
- After this entry is posted, the accrued liability accounts should equal the current liability on the Leave Rate Computation and Analysis. The last page of the Leave Rate Computation and Analysis should be used as the supporting schedule for the adjusted balances in the accrued leave liability accounts.
Closing Cost Allocation Accounts and Control Accounts
A series of journal entries needs to be prepared to formally close the cost allocation accounts and control accounts including salaries, fringe benefits, indirect costs and any special allocation pools in the General Ledger. These entries are prepared using the YTD Cost Allocation Summary, Fringe Benefit Analysis and Rate Computation, Indirect Cost Rate Computation and Analysis and if applicable, the YTD Service Unit, Shift Indirect (after shifting so it matches the R&E reports), Special Allocation Summary or Cost Allocation Locks. If Supplement #403 Dual Indirect Cost Pool is used, the Common Cost Rate Computation and Analysis and M&G Cost Rate Computation and Analysis will be used instead of the Indirect Cost Rate Computation and Analysis.
First, entries should be prepared to close individual Fringe Benefit items shown on the Fringe Benefit Analysis and Rate Computation to the 997000 50500 Fringe Benefit Control Account.
Debit 997000 50500 Fringe Benefits
Credit 997000 50600 XXXXXXXXXX
Credit 997000 50700 XXXXXXXXXX
Credit 997000 50800 XXXXXXXXXX
- The debit to the Fringe Benefit Control 50500 should equal the Benefits column on the Year-to- date Cost Allocation Summary.
- The credits to the individual fringe benefit expense items should be taken from the YTD column on the Fringe Benefit Analysis and Rate Computation, which should equal the amounts reflected in the General Ledger.
Debit 997000 59700 Indirect Costs
Credit 997000 50000 XXXXXXXXXX
Credit 997000 50500 XXXXXXXXXX
Credit 997000 _______
C
- The debit to the Indirect Cost Control 59700 should equal the Total Indirect column on the Year-to-date Cost Allocation Summary.
- The credits to the individual indirect cost items should be taken from the YTD column on the Indirect Cost Rate Computation and Analysis, which should equal the amounts reflected in the General Ledger.
Note: Salaries and fringe benefits charged to the Indirect Cost Pool are transferred in the General Ledger with Current Detail as a credit to the Salary Control Account (997000 50000) and Fringe Benefit Control Account (997000 50500). This allows the debit to the Indirect Cost Control Account (997000 59700) to equal the total indirect costs allocated.
If multiple indirect elements are used, you may do a separate journal entry for each indirect element (999000, 999100, etc.) or combine each expense code amount for all elements and use the element 997000 for the credit entry. Either method will accomplish closing out the indirect accounts in the General Ledger with Current Detail.
If you use Supplement #403 Dual Indirect Cost Pool which includes Common Costs and Management and General Costs (M&G), instead of using the above instructions, follow the
instructions below. Prepare the following entries to close individual Common Cost items shown on the Common Cost Rate Computation and Analysis to the 997000 59900 Common Cost Control Account.
Debit 997000 59900 Common Costs
Credit 997000 50000
Credit 997000 50500
Credit
997000 _____
- The debit to the Common Cost Control 59900 should equal the Total Common column on the Year-to-date Cost Allocation Summary.
- The credits to the individual common cost items should be taken from the YTD column on the Common Cost Rate Computation and Analysis (Total page).
Note: Salaries and fringe benefits charged to the Common Cost Pool are transferred in the General Ledger with Current Detail as a credit to the Salary Control Account (997000 50000) and Fringe Benefit Control Account (997000 50500). This allows the debit to the Common Cost Control Account (997000 59900) to equal the total common costs allocated.
If multiple common cost elements are used, you may do a separate journal entry for each element (999000-999400) or combine each expense code amount for all elements and use the element 997000 for the credit entry. Either method will accomplish closing out the common cost accounts in the General Ledger with Current Detail.
As stated above, if you use Supplement 403 Dual Indirect Cost Pool, entries should be prepared to close individual Management & General (M&G) items shown on the M&G Cost Rate Computation and Analysis to the 997000 59700 M&G Control Account.
Debit 997000 59700 M&G
Credit 997000 50000 XXXXXXXXXX
Credit 997000 50500 XXXXXXXXXX
Credit
997000 _____ XXXXXXXXXX
- The debit to the M&G Control 59700 should equal the Total M&G column on the Year-to-date Cost Allocation Summary.
- The credits to the individual M&G items should be taken from the YTD column on the M&G Cost Rate Computation and Analysis (Total page).
Note: Salaries and fringe benefits charged to the M&G Pool are transferred in the General Ledger with Current Detail as a credit to the Salary Control Account (997000 50000) and Fringe Benefit Control Account (997000 50500). This allows the debit to the M&G Indirect Cost Control Account (997000 59700) to equal the total M&G indirect costs allocated.
If multiple M&G indirect elements are used, you may do a separate journal entry for each element (999500-999900) or combine each expense code amount for all elements and use the element 997000 for the credit entry. Either method will accomplish closing out the M&G accounts in the General Ledger with Current Detail.
Third, entries should be made to close the control accounts to projects in the General Ledger. Separate entries should be made for salaries, fringe benefits, and indirect costs as illustrated below.
For Salaries:
Debit
997000 3XXXX Project A
997000 3XXXX Project B
997000 50000 Indirect Salaries
Credit 997000 50000 Salaries
For Fringe Benefits:
Debit
997000 3XXXX Project A
997000 3XXXX Project B
997000 50500 Indirect Fringe
Credit 997000 50500 Benefits
For Indirect Costs:
Debit
997000 3XXXX Project A
997000 3XXXX Project B
Credit 997000 59700 Indirect
- Amounts debited to projects should be based upon the Total Salaries, Benefits and Indirect Cost columns shown on the Year-to-date Cost Allocation Summary.
- The credit to the control accounts should be the sum of the debits resulting in a zero balance for all control accounts.
If you use Supplement #403 Dual Indirect Cost Pool which includes Common Costs and Management and General Costs (M&G), instead of using the above instructions, follow the instructions below.
Next, entries should be made to close the control accounts to projects in the General Ledger. Separate entries should be made for salaries, fringe benefits, common costs and M&G as illustrated below.
For Salaries:
Debit 997000 3XXXX Project A
997000 3XXXX Project B
997000 50000 Common Cost Salaries
997000 50000 M&G Indirect Salaries
Credit 997000 50000 Salaries
For Fringe Benefits:
Debit
997000 3XXXX Project A
997000 3XXXX Project B
997000 50500 Common Cost Fringe
997000 50500 M&G Indirect Fringe
Credit 997000 50500 Benefits
For Common Costs:
Debit
997000 3XXXX Project A
997000 3XXXX Project B
997000 59900 M&G Indirect share of Common Costs
Credit 997000 59900 Common Costs
For M&G Indirect Costs:
Debit
997000 3XXXX Project A
997000 3XXXX Project B
Credit 997000 59700 M&G Indirect
- Amounts debited to projects should be based upon the Total Salaries, Benefits and Indirect Cost columns shown on the Year-to-date Cost Allocation Summary.
- The credit to the control accounts should be the sum of the debits resulting in a zero balance for all control accounts.
Debit 997000 3XXXX Project A
997000 3XXXX Project B
Credit
997000 3XXXX Pool 1 Project
Debit 997000 3XXXX Project C
997000 3XXXX Project D
Credit
997000 3XXXX Pool 2 Project
- The debits to the projects should be based on the allocated amounts reflected on either the YTD Special Allocation Summary or YTD Service Unit Allocation Summary, depending upon which special allocation programs you use.
- The credits should be based on the adjusted Balance Forward of each Pool Project in the General Ledger. The adjusted balance is the result after the control accounts have been closed. These amounts should also be the same as the pool amounts on the YTD Service Unit Allocation Summary and YTD Special Allocation Summary.
Fifth, if Supplement 389 -Cost Allocation Locks is used, an additional general journal entry should be prepared after all control account entries have been completed. However, if amounts locked in an element are moved to an element within the same project, no journal entry is necessary. To prepare this entry, print out the Cost Allocation Lock Matrix or use the final matrix printed during your last month end processing. The amounts "moved" should be used as the debits and credits for this entry. For example, if the matrix showed -
Project 30000-Element 300100
Locked 50000 @ $20,000 moved $200 to Project 31000 - Element 310000 Locked 50500 @ $ 3,000 moved $ 30 to Project 31000 - Element 310000
Locked 59700 @ $ 5,000 moved $110 to Project 31000 - Element 310000
Your entry should be prepared like - Debit 997000 31000 $340.00
Credit 997000 30000 $340.00
Even though the matrix reflects amounts for each element's locked in transaction codes, the entry can be made for the total per project. One entry can be made for all locked in projects, titled "to post cost allocation locks to project equity accounts".
At this point General Ledger Balances for all 30000 accounts should agree with Project Balances on the Balance Sheet.
Revenue Recognitions for Governmental Non-Profit Agencies
Operating under Accounting Standards Established by the Governmental Accounting Standards Board (GASB)
Perhaps the single most important "final close" issue is revenue recognition - determining earned federal, state, local and other revenues.
Before adjusting for earned revenue, you need to know several things about each project. Some of these include:
- What is the Project's fiscal year?
- Are there local match requirements? If so, are they In-Kind Contributions, Cash or both?
- Is the project a cost reimbursement, performance based or fixed price contract?
- If project income was received, how is it to be applied - as a reduction of expenses or used as match?
- If more than one federal and/or state revenue source is received, what are the cost sharing requirements?
- What needs to be done with unearned cash - returned to the grantor agency or applied to the next year's contract?
- If the project ended during the fiscal year, can a revised final financial report be submitted? If not, what revenue is going to cover or to gain from any variance in cost allocation amounts?
Cost Reimbursement Contracts
Earned revenue is based on actual allowable expenses, if it does not exceed the contract award. To recognize this revenue, typically a receivable, deferred revenue or due to grantor entry will be made. Posting final entries should result in a zero project balance.
Performance Based Contracts
Earned revenue is based on the number of units provided times the contracted unit cost, if it does not exceed the contract award. Typically you will have to set up a receivable for the units of service provided in the last month or quarter of the fiscal year. In most cases, these projects will have a debit or credit balance reflecting the excess earned revenue or expense.
If the contract ended during the agency fiscal year, you should normally close the project balance to the Unrestricted Fund Balance. However, if management's policy or practice is to restrict this balance to be used only for this program, it should be closed to a restricted fund balance account.
If the contract did not end during the agency fiscal year, we recommend that you do not close the project balance for internal balance sheet purposes. The external balance sheet included in the audit report would, however, include all project balances as part of the agency fund balance, either restricted or unrestricted.
Fixed Price Contracts
Earned revenue is based on the completion of the product or service agreed upon. If completed, a receivable would be set up for the amount due based on the contract award. If the terms of the agreement have not been fulfilled, it may be necessary to establish the percentage of completion in order to determine the receivable or deferred revenue amount. We recommend that you consult with your auditor if this percentage of completion needs to be established.
If there is excess revenue or expense after recognizing earned revenue on the completed project, it would normally be closed to the agency fund balance.
If the contract did not end during the agency fiscal year, we recommend that you do not close the project balance for internal balance sheet purposes.
Exhibits 1 - 5 should be used to assist you with these revenue recognition entries. THESE FORMS ARE AVAILABLE ON OUR WEBSITE IN PDF FORMAT. You should fill these out before making any of these entries.
Exhibit 1: Transfers from Current Year Unrestricted for Cash Match or Project Overruns
This should be used to identify any local unrestricted amounts to be transferred into projects to meet cash match requirements or to subsidize unrecoverable project overruns.
Exhibit 2: Grant and Contract Receivables
This should be used to identify any accounts receivable earned by any projects.
Exhibit 3: Deferred Revenue
This is used to identify project receipts which must be deferred (payments from funding sources which have not been earned.)
Exhibit 4: Due to Grantor Agencies
Use this form to identify excess project revenue which must be returned to funding sources. This is normally used for closed projects.
Exhibit 5: Close Projects to Fund Balance
Use this form to identify excess project revenue which may be transferred to the fund balance. This would be appropriate for fixed price and performance based projects where excess revenues and expenditures exist. Also include the Current Year Unrestricted (agency account) balance on this form.
Upon completion of these forms, one general journal entry should be prepared for each schedule. Instructions for doing so are shown on the schedules.
These schedules serve a dual purpose of assisting you with the preparation of revenue recognition journal entries and serving as an audit schedule to support certain accounts. They can also be used to assist with applicable reversing entries in the new year.
Revenue Recognition for Not-For-Profit Agencies
Operating under Accounting Standards Established by the Financial Accounting Standards Board (FASB)
Perhaps the single most important "final close" issue is revenue recognition - determining earned federal, state, local and other revenues and the amount of change in permanently restricted net assets, temporarily restricted net assets and unrestricted net assets for the fiscal year.
In FASB Statement 116, Accounting for Contributions Received and Contributions Made, Appendix B, Basis for Conclusions, paragraph 80 states:
"The Board noted, however, that certain promises become unconditional in stages because they are dependent on several or a series of conditions-milestones-rather than a single future and uncertain event and are recognized in increments as each of the conditions is met. Similarly, other promises are conditioned on promises incurring certain qualifying expenses (or costs). Those promises become unconditional are recognized to the extent that the expenses are incurred. The accounting for that type of conditional promise results in recognition of assets and revenues as allowable costs are incurred, which resembles contractor accounting for government cost plus fixed fee arrangements where the contractor's right to partial payment becomes unconditional in advance of delivery of a finished product."
Based on the above paragraph, the recognition of earned revenue at the end of a fiscal year for cost reimbursement, performance based and fixed price contracts does not vary from previous practices. However, the terminology used in the sample audit report formats as illustrated in FASB Statement No. 117, Financial Statements of Not-for-Profit Organizations has changed slightly. For example, Refundable Advances is used rather than Deferred Revenue for grants and contracts and Net Assets are used rather than fund balances. Another change is the classification of grant/contract revenue types as contributions or fees.
It appears that most cost reimbursement grant and contract positive balances (excess revenue over expense) will be closed to refundable advances for projects still in process or grants payable for projects that have closed. These balances contain restrictions as to their use and conditions as to their recognition as revenue.
Temporarily Restricted Net Assets then consists of excess revenue over expense which is restricted as to its use, but for which there is not condition inhibiting its retention by the grantor assuming funds will be used according to the restriction. An example may be project income received for a particular program that is unspent but allowed to be used in a future period for that particular program.
Before adjusting for earned revenue, you need to know several things about each project. Some of these include:
- What is the Project's fiscal year?
- Are there local match requirements? If so, are they In-Kind Contributions, Cash or both?
- Is the project a cost reimbursement, performance based or fixed price contract?
- If project income was received, how is it to be applied - as a reduction of expenses or used as match?
- If more than one federal and/or state revenue source is received, what are the cost sharing requirements?
- What needs to be done with unearned cash for projects that end on or before your fiscal year ends - returned to the grantor agency or applied to the next year's contract?
- If the project ended during the fiscal year, can a revised final financial report be submitted? If not, what revenue is going to cover or to gain from any variance in cost allocation amounts?
Cost Reimbursement Grants and Contracts
Earned revenue is based on actual allowable expenses, up to the award and is classified as a contribution (auditors may classify these contributions separately, such as governmental contributions). To adjust revenue, typically a contribution receivable, grants payable or refundable advance off-setting entry will be made. Posting final entries should result in a zero project balance.
Performance Based Contracts
Earned revenue is normally based on the number of units provided times the fee per unit up to the award. This revenue is classified as fees (auditors may classify these fees separately, such as governmental fees). Typically you will have to set up a receivable for the un-reimbursed units of
service provided in the last month or quarter of the fiscal year. In most cases, these projects will have a debit or credit balance reflecting the excess earned revenue or expense.
You would normally close the project balance to Unrestricted Net Assets unless program guidelines or contract specifications require that excess revenue over expense be restricted to be used for this functional program area only. In that case, it should be closed to Temporarily Restricted Net Assets. Also, if management's policy or practice is to restrict this balance to be used only for this program, it should be closed to Unrestricted-designated Net Assets.
Fixed Price Contracts
Earned revenue is based on the completion of the product or service agreed upon and is classified as fees (auditors may include these with other governmental fees). If completed, a receivable would be set up for the amount due based on the contract award. If the terms of the agreement have not been fulfilled, it may be necessary to establish the percentage of completion in order to determine the earned revenue. We recommend that you consult with your auditor if this percentage of completion needs to be established.
If there is excess revenue or expense after recognizing earned revenue on the completed project, it would normally be closed to unrestricted net assets.
If the contract did not end during the agency fiscal year, you may choose not to close the project balance to a net asset account for internal balance sheet purposes.
Exhibits 1 - 7 should be used to assist you with these revenue recognition entries. THESE FORMS CAN BE FOUND ON OUR WEBSITE IN PDF FORMAT. You should fill these out before making any of these entries.
Exhibit 1: Transfers from Current Year Unrestricted for Cash Match or Project Overruns
This should be used to identify any local unrestricted amounts to be transferred into projects to meet cash match requirements or to subsidize unrecoverable project overruns.
Exhibit 2: Governmental Contributions Receivable
This should be used to identify any accounts receivable for governmental contributions.
Exhibit 3: Governmental Fees Receivable
This should be used to identify any accounts receivable for governmental fees.
Exhibit 4: Grantor Payables
Use this form to identify excess project revenue which must be returned to funding sources. This is normally used for closed projects.
Exhibit 5: Refundable Advances
Use this form to identify excess project revenue for programs that did not end on the fiscal year.
Exhibit 6: Record change to Temporarily Restricted Net Assets
This is used to identify the excess receipts over expenditures of certain types of revenue
such as program income and local government contributions that were received for a specific program without a time limitation. These are closed to temporarily restricted net assets.
Exhibit 7: Record change to Unrestricted Net Assets
Use this form to identify excess unrestricted contributions or fees which may be transferred to unrestricted net assets. This would be appropriate for fixed price and performance based projects and other unrestricted contributions where excess revenues and expenditures exist. Also include the Current Year Unrestricted (agency account) balance on this form.
Upon completion of these forms, one general journal entry should be prepared for each schedule. Instructions for doing so are shown on the schedules.
These schedules serve a dual purpose of assisting you with the preparation of revenue recognition journal entries and serving as an audit schedule to support certain accounts. They can also be used to assist with applicable reversing entries in the new year.
Recommended Terminology Changes for Chart of Accounts for Not-For-Profit Agencies
In the following example, the code numbers may be changed appropriately. Assets
12000 Governmental Contributions receivable 12100 Governmental Fees receivable
Liabilities
25000 Refundable advances (replaces deferred revenue for contributions) Net Assets
Example 1: Detail Form
39000 Temporarily restricted
39100 Unrestricted-available
39200 Unrestricted-designated
39300 Unrestricted-designated for long-term investment 39400 Unrestricted-land, buildings, and equipment 39500 Permanently restricted - endowment
Example 2: Summary From
39000 Temporarily restricted net assets
39100 Unrestricted net assets
39200 Unrestricted -land, buildings, and equipment 39600 Permanently restricted net assets
Revenues
We recommend that each revenue code be titled as a contribution or a fee. For example: 40000 Headstart contributions
40100 USDA fees
40200 Matching Contributions
40300 In-kind Contributions
Note: It is recommended that contributions, fees and other types of revenue not be classified as temporarily restricted, unrestricted or permanently restricted when received. These designations can be made at year end based on contractual agreements.
Processing Procedures for Year End
Follow these Monthly processing instructions when running your final run:
- Print Batch Analysis
- There should be no reason to print the Timesheet reports again since no changes should have been made since your closing entries were prepared.
- Run all General Ledger Listings steps. (If you use Supplement #392 Monthly Center Allocations and the GJ entry has already been created to allocate the pool(s) then this step should be skipped.)
- Run all Cost Allocation menu steps.
- Run all Financial Reporting steps.
NOTE: When printing the Balance Sheet, check the Year End box.
- Print all applicable month end and year end reports.
- Backup your database
- In your Previous Backups folder, create a folder called "Final (month and year) backup before audit. Copy your database into this folder.
- Copy onto removable media such as a flash drive for an off-site copy.
- If you want a copy saved for future access, create a folder for FY
_ database and
follow the instructions in Help\General Ledger\Year End\Saving a Copy of Your Final Year End Database
- At this point you should click on the Month End button as you normally would during month end activities.
- Year End - Roll Forward R/E Prior Year and GL Prior Year. Please see the Help manual section
General Ledger\Year End\Checklists for Roll Forward and Reverse Roll Forward for detailed instructions.
Note: During the Roll Forward R/E Prior Year step the software will automatically make a copy of the cost allocation tables. Should you have forgotten to previously click on the Month End button in Financial Reports to advance the month, the system will change the current period to the first month of the new fiscal year. If you had already advanced the month it will not be advanced again.
