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Reporting Requirements for Annual Financial Reports of State Agencies and Universities

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Reporting Requirements for Annual Financial Reports of State Agencies and Universities

General Accounting

Payables/Accrued Expenditures

For AFR reporting purposes, payables are defined as short-term liability accounts reflecting amounts owed under a modified accrual or full accrual basis to private persons or organizations for goods and services received by an agency but for which the agency has not made payments.

Encumbrances are defined as amounts contractually obligated for goods or services where the good or service has not been received. For more information, see Encumbrance Reporting and Lapsing of Appropriations (APS 018) (FPP A.019).

Encumbrances differ from payables in that encumbrances are commitments for goods or services made before the end of the fiscal year where those goods or services are not received at fiscal year-end. Encumbrances are used for budgetary purposes only and are not included in an agency’s AFR.

For AFR purposes, the modified accrual or full accrual basis of accounting is utilized in measuring financial position and operating results. The modified accrual basis recognizes expenditures when the fund liability is incurred, except for:

  • Inventories of materials and supplies
    –AND–
  • Prepaid insurance and similar items

For more information, see Inventories and Prepaid Items.

Governmental fund expenditures are recognized on the modified accrual basis. Expenditures (except for unmatured interest on general long-term debt) are recognized in the fiscal year in which the fund liability is incurred, if measurable. Unmatured interest on general long-term debt is recognized when due.

The full accrual basis recognizes expenses in the fiscal year in which those transactions, events or circumstances occur and become measurable.

Proprietary fund and fiduciary fund expenses are recognized on the full accrual basis. Expenses are recognized in the period incurred, if measurable.

Determination of payables by agencies is often related to determining actual expenditures/expenses paid after the fiscal year-end. This can result in delaying the preparation of financial statements for financial reporting. Also, payables based on subsequent payments through the Encumbrance Reporting and Lapsing of Appropriations (APS 018) (FPP A.019) reporting deadline may not be complete for financial reporting purposes.

GAAP recognizes that current liabilities include:

  • Known obligations
  • Amounts that can only be determined approximately
  • Amounts where specific payee information cannot yet be determined

It is both acceptable and realistic to report estimated accrued expenditures/expenses.

One of the basic accounting principles accepts and recognizes that strict adherence to principles is not required when the financial report is not materially affected. At fiscal year-end, use the following guidance to help estimate payables that are materially accurate. This process is not dependent on the subsequent payments made and therefore does not delay report preparation.

Essentially, the agency must determine routine fixed payments and estimate amounts that may fluctuate. Fixed amounts, where applicable, include:

  • The August salary payroll and related payroll costs (reported as payroll payable, not accounts payable)
  • Building space rental
  • Equipment rentals
  • Maintenance agreements
  • Other amounts where the costs are considered consistent from month to month

Other amounts are estimated. Some of these estimates can be based on trend expectations. For example, phone usage normally does not fluctuate significantly from month to month. By reviewing phone expenditures paid for the most recent twelve months and determining an average monthly charge, a materially accurate number becomes available. This amount is multiplied by the number of months service was unpaid.

This method can be used for any recurring expenditure/expense that does not significantly fluctuate monthly. Some examples include:

  • Travel
  • Telephone
  • Contracted professional fees
  • Printing and reproduction
  • Materials and supplies
  • Public assistance payments
  • Electricity, gas and water

Expenditures/expenses may have seasonal fluctuations. The agency must determine whether significant expenditures/expenses fall or rise at fiscal year-end. Increasing or decreasing the amount accordingly may modify the above estimate. For example, if monthly travel expenditures for the past few years dropped 50 percent in August, the estimated August payable is 50 percent less than the monthly average.

Some agencies may have large dollar amounts related to projects or grant programs. The services or goods being supplied may not have a consistent pattern of disbursement. Obtain information directly from those overseeing the projects or programs. Because of the nature and size of these programs, a materially accurate prediction is available at fiscal year-end. Include this estimate in accounts payable.

The Cash Management Improvement Act (CMIA) may result in some agencies having an interest liability or receivable with a federal agency. Estimate the amount and include it as a reportable amount in the financial statements.

In addition to the above, the agency must review its requisitions for capital purchases and other significant goods or services contracted that are reported as payables. Even though the amount to be paid may differ from the amount of the original requisition, the requisitions in most cases produce materially accurate results.

Upon completing the analysis, add the elements to determine the full payables reported.