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Glenn Hegar  ·  Texas Comptroller of Public Accounts

Reporting Requirements for Annual Financial Reports of State Agencies and Universities

General Accounting


Each agency must use the consumption method to record its change in inventories. In other words, an agency reports inventories as an asset in the period they are purchased and defers the recognition of the expenditure until the period in which inventories are used or consumed.

Using a traditional accounting method, an asset is recorded at the time of purchase and the fund balance is allocated as “nonspendable.” An expenditure is recorded at the fiscal year-end for an amount representing prepaid items used during the fiscal year. However, when there is an outlay of cash, the use of a COBJ is a requirement in USAS. Therefore, an agency will actually record an expenditure at the time of purchase using a COBJ that rolls up to materials and supplies using one of the following GAAP source/object codes:

  • 0240 — governmental funds
  • 1120 — proprietary funds
  • 2645 — fiduciary funds

As a result of this expenditure being recorded in USAS, agencies must adjust this expenditure at fiscal year-end in order to report only the amount of inventories consumed during the year. The T-code used to adjust the expenditure also adjusts the inventory asset balance. Therefore, an agency must also process a USAS entry to adjust the nonspendable fund for the change in the inventory asset balance.

Use the following T-codes at fiscal year-end to adjust the materials and supplies expenditure and the inventory asset balance (GL 0285 — consumable inventories; or GL 0290 — merchandise inventories).

Seq No Batch Type Doc Type Eff Date Fin Agy TC AY PCA COBJ* Amount R Appn No Fund Input GL
* Use the same COBJ used to record the purchase of materials and supplies.
** Use GL accounts 0285 or 0290.
To Record Increase in Fiscal Year-End Inventory Balance
To Record a Decrease in Fiscal Year-End Inventory Balance

Accounting effect of above entries:

Debit Credit
(1) To Record Increase in Fiscal Year-End Inventory Balance    
  XXXX Input GL $ XX.XX  
  5600 GAAP Expenditure Offset   $ XX.XX
(1) To Record Decrease in Fiscal Year-End Inventory Balance    
  5600 GAAP Expenditure Offset $ XX.XX  
  XXXX Input GL   $ XX.XX

If the inventory GL account is still incorrect after an adjusting entry was made in USAS, use T-codes 644 or 645 to increase or decrease the account balance. Since a system clearing balance is created when these T-codes are used, it is assumed another GL account requires an adjustment or a system clearing balance already exists. For more information, see Restatements to Fund Balance/Net Position and System Clearing Adjustments.

Business-type merchandise inventories are stated at the lower of cost or market basis when the goods decline in value below its original cost due to the following reasons:

  • Obsolescence
  • Price-level changes
  • Damaged goods
  • Deterioration
  • Other causes

Recognize loss in the period when the utility of goods is impaired.

The fund balance must be allocated to GL 2301 – Fund Balance – Nonspendable for Inventories in an amount equal to the inventories asset balance. For more information on fund balance allocations, see Allocation of Fund Balance or Net Position. There are also fund balance allocation Working Papers available for all governmental fund types.

Note: If your agency has a situation similar to that mentioned above and needs help with USAS entries, contact your financial reporting analyst.

Glenn Hegar
Texas Comptroller of Public Accounts
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