Reporting Requirements for Annual Financial Reports of State Agencies and Universities
General Accounting
Prepaid Items
Each agency must use the consumption method to record its changes in prepaid items. In other words, an agency reports the prepaid items as an asset in the period in which they are purchased and defers the recognition of the expenditure until the period in which the prepaid items 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 end of the fiscal year 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 the COBJ that corresponds with the prepaid item purchased (such as insurance, subscriptions, rent, etc.).
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 prepaid items used or consumed during the year. The T-code used to adjust the expenditure also adjusts the prepaid items asset balance. Therefore, an agency must also process a USAS entry to adjust the nonspendable fund balance for the change in the prepaid item asset balance.
Use the following T-codes at fiscal year-end to adjust the expenditure and the prepaid item asset balance (GL 0295).
| Seq No | Batch Type | Doc Type | Eff Date | Fin Agy | TC | AY | PCA | COBJ* | Amount | R | Appn No | Fund | Input GL |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| To Record an Increase in Fiscal Year-End Prepaid Items Balance | |||||||||||||
| (1) | 5 | U | 0832CY | XXX | 633 | XX | XXXXX | XXXX | $ XX.XX | N/A | XXXX | 0295 | |
| –OR– To Record a Decrease in Fiscal Year-End Prepaid Items Balance |
|||||||||||||
| (1) | 5 | U | 0832CY | XXX | 632 | XX | XXXXX | XXXX | $ XX.XX | N/A | XXXX | 0295 | |
| * Use the COBJ that corresponds with the item purchased. | |||||||||||||
Accounting effect of above entries:
| Debit | Credit | ||
|---|---|---|---|
| (1) | To Record an Increase in Fiscal Year-End Prepaid Items Balance | ||
| 0295 Prepaid Items | $ XX.XX | ||
| 5600 GAAP Expenditure Offset | $ XX.XX | ||
| –OR– | |||
| (1) | To Record a Decrease in Fiscal Year-End Prepaid Items Balance | ||
| 5600 GAAP Expenditure Offset | $ XX.XX | ||
| 0295 Prepaid Items | $ XX.XX | ||
If the prepaid items GL account is still incorrect after an adjusting entry is 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.
The fund balance must be allocated to GL 2302 – Fund Balance – Nonspendable for Prepaid Items in an amount equal to the prepaid item 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.