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Section 4: General Accounting

Year-End Closing and Accounting

Effective Date:

05/19/11

Approved By:

Lenora Chapman, Associate Vice President, Financial Affairs

Last Revised On:

07/10/13

For Assistance Contact:

Assistant Vice President, Financial Affairs and University Controller

PURPOSE/SCOPE

To provide guidance for financial year-end closing activities.

AUTHORITY


UNIVERSITY GUIDELINES

Table of Contents

A. Year-End Workshops and Calendar

The UTSA fiscal year is September 1 through August 31. Year-end closing activities are performed each fiscal year to help provide an accurate and complete set of financial records to use as the basis for UTSA’s annual financial report. During the month of July the Controller holds year-end workshops to communicate deadlines for year-end activities and to discuss the overall closing process, including any changes to business processes. A year-end calendar showing the deadlines, the date of the final August check run, and other year-end closing activities, is posted to the Controller’s website.

B. August Close

The August Close is the first “close” in the year-end process. August is left open for the first few days of September. During this time departments may make additional August entries to ensure all activity is reflected in the correct fiscal year and avoid excessive accruals. These entries are included in the August close and the August Statement of Accounts (SOA).  All entries after the August close will be “13th Month” entries.

C. 13th Month

UTSA uses accrual basis accounting as required by GASB Statement No. 35 and UT System policy UTS142.8. Accrual accounting matches expenses with the revenues that fund them by recording revenues in the fiscal year in which they are earned regardless of when payments are received, and expenses in the fiscal year in which they are incurred, regardless of when payments are made.

This often requires entries at the end of a fiscal year to adjust the accounting records. Most of these entries are made in the “13th Month,” an accounting period between the August close and the new fiscal year. The 13th Month is used by Financial Affairs for year-end closing entries and other adjustments after the August close. Accrual entries are subject to a threshold, typically $1,000 or greater.

These transactions are not included in the August SOA but can be seen by using the DEFINE GT1 command and entering THR in the Month field.  Transactions for the 13th Month can be viewed in UTDirect. For more information on using DEFINE, see the following training manuals:

 

 

The 13th Month close is the final fiscal year close, performed after all closing entries and other adjustments are recorded and the annual financial report has been finalized.

Entries for the 13th Month are made by Financial Affairs staff and may include, but are not limited to, the following:

 

1. Expense Accrual

Expenses incurred by the receipt of goods or services in the prior fiscal year but not recorded before the August close are accrued (recorded) in the prior fiscal year using a 13th Month entry. 

Methods of identifying such expenses include, but are not limited to:

  • Review of departmental records and reconciliation of the August SOA - see UTSA Financial Management Operational Guideline (FMOG) Statement of Accounts (SOA)  Reconciliation Process.  Departmental records should be reviewed to identify goods/services received but not recorded (no invoice received, or invoice received but no voucher has been processed) before the August close.  Departments should notify Disbursements and Travel Services of such items once identified. 
  • Identification of transactions entered after the August close that apply to the prior fiscal year (such transactions should have prior year Service Dates). The transactions are identified by Disbursements and Travel Services through reports.

These expenses will be accrued as appropriate. To avoid double counting accrued expenses, the accrual entry is automatically “reversed” in the new fiscal year. The new fiscal year will then have two entries: the original transaction to record the expense, and the accrual reversal to remove it.  The net effect is zero in the new fiscal year because the cost of the item was expensed in the prior fiscal year.

Expenses incurred in the prior fiscal year but not reflected in departmental records nor recorded in either the prior or new fiscal year (unrecorded liabilities) are also accrued as appropriate. 

For assistance with identifying expenses that may need to be accrued, contact the Accounting Services department.

2. Revenue Accrual

Revenue earned in the prior fiscal year but recorded after the August close should have a prior fiscal year Service Date.  Examples include goods or services provided to external customers, and interest on investments. Such revenue is identified through SOA reconciliation, departmental records and reports, and accrued in the prior fiscal year as appropriate.    

To avoid double counting the revenue, the accrual entry is “reversed” in the new fiscal year. The new fiscal year will now have two entries: the original transaction to record the revenue, and the accrual reversal to remove it.  The net revenue recorded in the new fiscal year is zero since it was recorded in the prior fiscal year.

Revenue earned in the prior fiscal year but not reflected in departmental records nor recorded in either the new or the prior fiscal year is also accrued as appropriate.    

For assistance with identifying revenue that may need to be accrued, contact the Accounting Services department.

3. Prepaid Expenses

In some cases, all or a portion of a payment may apply to future fiscal years. Examples include maintenance contracts, facility rentals, insurance policies and software license agreements that span more than one fiscal year.
The portion of the payment that applies to future years is recorded as “pre-paid.”  The “prepaid” portion of the payment is not yet an expense because it relates to future periods.  It is treated as an asset (prepaid software license, prepaid insurance, etc.), that will be “used up” over a period of time.  The portion that is used during each fiscal year is recorded as an expense for that year, and the “prepaid” asset is reduced by the same amount until the entire asset is used up. 
EXAMPLE: A three-year software license costing $3,000 covers Fiscal Years 10 – 12, and the entire fee is paid in September of Fiscal Year 10 (FY10).  Each year, one-third of the license ($1,000) will be “used.” 

  1. On September 1 of FY10, a voucher is entered and paid for a three-year software license in the total amount of $3,000.  This is recorded as an expense to the budget group and is shown as an expense in the account until year end (13th month) when the entries are made for prepaid expenses.
  2. In the 13th month of FY10, a prepaid entry allocates one year of software license expense to the account.  This entry credits the account for $2,000 in FY10 and generates a prepaid  entry of $2,000. Any budget balance resulting from this expense reversal will be allocated in the new fiscal year.
  3. The prepaid entry is reversed at the beginning of FY11 and an expense is generated on the account for $2,000.  The expense for the two-year period will be carried in the budget group until the end of FY11. 
  4. In the 13th month of FY11, a prepaid entry allocates one year of software license expense to the account. This entry credits the account for $1,000 in FY11 and generates a prepaid entry of $1,000. Any budget balance resulting from this expense reversal will be allocated in the new fiscal year.
  5. The prepaid entry is reversed at the beginning of FY12 and an expenditure for the third year is recorded in the budget group for FY12.

 

Date/Period

Expense
Entry

Expense Balance

Prepaid
Entry

Prepaid
Balance

1. Sept 1 FY10

       $3,000

       $3,000

 

 

2. 13th Month FY10

      ($2,000)

       $1,000

       $2,000

       $2,000

3. Sept 1 FY11

       $2,000

       $2,000

      ($2,000)

           -0-

4. 13th Month  FY11

      ($1,000)

       $1,000

       $1,000

       $1,000

5. Sept 1 FY12

       $1,000

       $1,000

      ($1,000)

           -0-

This process records the actual expense for the license over the three years in which it is used, even though the entire payment was made in the first year.  Prepaid expense entries are either automatic or entered manually by Disbursements and Travel Services.
Departments with such expenses should ensure that the DEFINE service dates are appropriate so that entries will be recorded correctly. For assistance, contact Disbursements and Travel Services.  Disbursements and Travel Services will track the annual entries to confirm that the appropriate expense and prepaid asset reductions are recorded each year over the life of the prepaid asset.

4. Deferred Revenue

Revenue is “deferred” (moved to a future fiscal year) for payments received but not yet earned by August 31. If the entire payment relates to the new fiscal year, the transaction should have a new fiscal year Service Date. Such revenue is identified by either a Banner program or notification by departments, depending on the nature of the revenue.  
The portion of the revenue that relates to the new fiscal year will be deferred to that fiscal year. 
EXAMPLE: A fall tuition payment is posted on August 15, but because the semester begins prior to August 31,the majority portion of the tuition applies to classes taught after August 31. The portion of the payment that applies to classes in the new fiscal year is “deferred” to the new fiscal year to recognize the revenue in the period in which it will be earned. However, this entry is only made for the annual financial report and the revenue for the entire academic year is reflected in the new fiscal year.

5. Error Corrections and Other Adjustments

Subject to approval by the Director of Accounting, 13th month entries may also be made (1) to correct errors discovered through year-end closing activities, audits and other reviews; and (2) for estimates and adjustments based on current information.

D. Encumbrances

Encumbrances are used to reserve (obligate) funds for future expenditures by reducing the available budget balance. Encumbrances are reversed (disencumbered) when the expense is recorded. For more information on encumbrances, see FMOG Statement of Accounts (SOA) Reconciliation Process.
All encumbrances except Purchase Order (material) encumbrances are disencumbered at year end. Travel encumbrances are disencumbered by Disbursements and Travel Services, and salary encumbrances are disencumbered automatically by the financial system.   

Purchase Order (PO) encumbrance balances at August 31, and the funds to cover them are brought forward to the new fiscal year in a lump sum transaction with a 0299 Object Class Code.  For more information on Object Class Codes, see FMOG Chart of Accounts.

This entry is then divided into individual PO balances in the new fiscal year. All of the entries must total to the prior year 0200 Object Class Code balance. After the lump sum figure is divided into individual Purchase Order balances, the 0299 Object Class Code balance in the new fiscal year should equal zero. 

EXAMPLE: At the end of Fiscal Year 10 (FY10), the following PO encumbrances are open on an account.  Both are Sub-Account 50/Object Class Code 0200, with no goods or invoice received at year end.


PO 2010AExp              

PO to Dell Computer for $10,000

PO2010BExp               

PO to Amazing Samson Software for $3,700

In September of FY11 (the new Fiscal Year), there will be an entry to bring the encumbrance balance forward.  This is recorded on a VJB document or “B” voucher.  The entry will debit Object Class Code 0299, and will reference PO number **0299, bringing forward the total balance in all PO encumbrances at year end ($13,700). This entry is then reversed on a separate VJB document, which will record the individual POs in Object Class Code 0200.  There will be three lines generated:

  1. Credit to Object Class Code 0299 for $13,700 -  Reference PO number **0299
  2. Debit to Object Class Code 0200 for $10,000 -   Reference PO number 2010AExp
  3. Debit to Object Class Code 0200 for $3,700 -   Reference PO number 2010BExp

These entries do not increase the balance available for the account because the budget brought forward is already encumbered.

E. Year-End Budget Balances

Lapsed Balances

After the 13th month is closed for departmental entries, budget balances may be cleared (lapsed) from individual accounts. Any account deficits are cleared by the Budget Office at year end from other available departmental or divisional funds. Accounts are designated by the Budget Office as lapsing or non-lapsing based on the source of the funds.  Balances in non-lapsing accounts roll forward, whereas lapsing accounts do not get to retain excess funding at fiscal year end.

14-Accounts: Educational and General (E&G) funds

During the second year of a State of Texas legislative biennium, UTSA must show that it has fully expended the total amount of state-appropriated funding.  This includes every Special Item and Research Development funds, as those are treated as line item appropriations.  The Budget Office is responsible for monitoring this and working closely with Accounting and the affected departments to assure this occurs. 

Every E&G account, with the exception of divisional reserves, Graduate Incremental Tuition, lab fees, and grant cost-sharing/match accounts will lapse. Salary accounts in Academic Affairs departments are swept throughout the year. Refer to the Academic Affairs website for detailed Academic Affairs lapse guidelines. Balances in the Business Affairs, Community Services, President’s Office, Research, Student Affairs and External Relations accounts lapse to reserves.  The disposition of balances in other accounts is based on the respective Vice President’s direction for each area. It is the institutional practice to move residual balances back to designated funds (19-accounts) by adjusting the actual transfer of designated funds needed to fund E&G expenses and obligations.    

19-Accounts: Designated funds

19-7 accounts are treated as discretionary funding from designated tuition and the same lapse guidelines that apply to E&G funds apply to these accounts.

All other 19- accounts do not lapse at year end (balances roll forward to the next fiscal year), The exceptions to this rule are for 19-8 Facilities and Administration (F&A) accounts. Balances under $100 in these accounts will be swept to the next higher level in accordance with the F&A Memorandum of Understanding. Refer to the Academic Affairs website for detailed Academic Affairs lapse guidelines.

Other funds:

Accounts in Fund Groups 18 (Service Centers), 26 (Grants and Contracts), 29 (Auxiliary Enterprises), 30 (Gift/Restricted), and 36 (Plant Fund) do not lapse and all balances roll forward to the next fiscal year. Fund Group 18 accounts are subject to FMOG - Establishment and Financial Management of Authorized Service Centers and Specialized Service Facilities for compliance with OMB Circular A-21.  Surpluses/deficits exceeding ten percent in these accounts require exception approval by the Associate Vice President for Financial Affairs or the Assistant Vice President for Financial Affairs/University Controller. Completed projects in Fund Groups 26 and 36 are closed and entries will be made in the following fiscal year to delete them.

For more information on Fund Groups, see FMOG Chart of Accounts. For detailed information on the treatment of year-end budget balances see the Lapse Guidelines on the Budget Planning and Development website.

Balances rolled forward, along with PO encumbrances and the funds to cover them (see “Encumbrances”), are recorded in the “14th Month,” a period between the 13th Month close and the new fiscal year that is used exclusively for bringing balances forward to the new year.  You can view 14th Month activity in UTDirect, and also in DEFINE by using the GB2 command and typing BF or 14 in the Month field.

F. Management Certification and Fiscal Management Sub-Certification

Management Certification and Fiscal Management Sub-Certification are important year-end activities. All Account Administrators must complete the Management Certification and Fiscal Management Sub-Certification Survey annually for all of their accounts with $3,000 or more of activity by the date specified by Institutional Compliance. For detailed guidance, see the Management Assessment Tool and FMOG Fiscal Management Sub-Certification Work Plan


DEFINITIONS

Term

Description

Account Administrator

An individual with fiscal responsibility and decision-making authority for UTSA resources who has approval access to commit funding using the institutional financial accounting system. This is typically the department head for non-grant accounts and the principal investigator for grant accounts.

Service Date

A six-digit field (mm/dd/yy) that identifies the fiscal year to which a transaction applies. The Service Date is used to identify transactions that should be moved to a different fiscal year.

 

Transactions After August Close That Apply to the Prior Fiscal Year
Transactions entered after the August close that apply to the prior fiscal year should have prior year Service Dates. Example: A payment entered in September of Fiscal Year 11 for goods received in August of Fiscal Year 10 should have a Service Date of 083110 or earlier to denote that the transaction applies to Fiscal Year 10. The transaction will be accrued in Fiscal Year 10.

 

Transactions Before September 1 That Apply to the New Fiscal Year
Transactions entered before September 1 that apply to the new fiscal year should have new fiscal year Services Dates. Example: A payment received in August of Fiscal Year 10 that applies to Fiscal Year 11 (such as registration for a UTSA seminar to be held in September) will have a Service Date of 090110 or later. The transaction will be moved to Fiscal Year 11.

DEFINE

The administrative system used to process transactions for Accounting, Budget, Payroll and Human Resources. DEFINE is an acronym for DEpartmental FInancial Information NEtwork.

UTDirect

UT Direct is a web portal for the DEFINE system.

REFERENCES/LINKS

RELATED FORMS/WORKSHEETS

None at this time.


REVISION HISTORY

Date Description

07/10/13

Changed all "University Advancement" instances to "External Relations."

09/18/12

Updated link to the Management Assessment Tool and updated verbiage.

07/12/12

Changed reference for object class codes from FMOG - Statement of Accounts (SOA) Reconciliation Process to FMOG - Chart of Accounts in the Encrumbrances section.

02/22/12

05/17/11

Published new guideline.


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