Reporting Requirements for Annual Financial Reports of State Agencies and Universities

Notes & Samples

NOTE 5 – Long-Term Liabilities
Compensable Leave Liability Methodology

A liability for compensated absences must be accounted for and reported on a basis with governmental fund accounting principles. The amount of compensated absences recognized as expenditures in financial statements prepared using the current financial resources measurement focus must be the amount that normally would be liquidated with expendable available financial resources.

Sick Leave

Agencies become obligated to pay an employee for sick leave when:

• The employee earns the time off
• The sick leave is made available to the employee
  –and–
• It is more likely than not that the benefit will be used

Although the entire benefit might not be used if the employee does not become ill or otherwise meet the requirement for use, it is made available to the employee because of past service.

Employees accrue sick leave each month and the entire balance carries over (without limits) at the end of each fiscal year. However, unused leave is not paid upon termination of employment. Such leave is attributable to services already rendered because employees earn a certain number of hours for each month that they are employed. Therefore, unused amounts are forfeited upon termination of employment.

Sick leave accrued by an employee can be used only when the employee is sick or the employee must care for a family member. Unused sick leave accumulates because the entire balance carries over at the end of each fiscal year. Each agency must estimate how much of the leave is more likely than not to be used as paid leave and recognizes that portion as a current liability for compensated absences.

The following is an example of the governmental fund entry.

Accounting effect of above entries:

The following is an example of the proprietary funds entry.

* Note: Using T-codes 646/646 generates an automatic reversal in the following fiscal year using T-codes 660/661.

Accounting effect of above entries:

Annual Financial Report Working Papers are available under Long-Term Liability Basis Conversion category to assist in preparation of the governmental fund (FT12) journal entries.

Annual Leave, Overtime and Compensatory Time

Liability Calculation Criteria

• If the amount of overtime leave accrued during the current year is greater than the fiscal year-end balance, then the current liability is equal to the fiscal year-end balance. The noncurrent is the fiscal year-end balance minus the current liability.
• If the amount of overtime leave accrued during the current year is less than the fiscal year-end balance, then the current liability is equal to the leave accrued during the year. The noncurrent liability is the fiscal year-end balance minus the current liability.

Liability Calculation Examples:

Example 1:

The employee has 23 years of service and can accrue 15 hours of annual leave per month. The employee used 120 hours of annual leave during the current year and had a beginning balance of 300 hours and a fiscal year-end balance of 360 hours. The employee’s salary rate is $35 per hour.

Example 2:

The employee has 6 years of service and can accrue 10 hours of annual leave per month. The employee used 64 hours of annual leave during the current year and had a beginning balance of 59 hours and a fiscal year-end balance of 115 hours of annual leave. The employee’s salary rate is $12 per hour.

Example 3:

The employee earned 60 hours of unpaid overtime during the year and used 160 hours of overtime as comp time. The employee had a beginning balance of 200 hours and a fiscal year-end balance of 100 hours. The employee’s pay rate is $12 per hour.

COBJs that can be used for the following entries are:

• 7001 – Salaries and Wages – Line Item Exempt Positions
• 7002 – Salaries and Wages – Classified and Non-classified Permanent Full-time Employees
• 7003 – Salaries and Wages – Classified and Non-classified Permanent Part-time Employees
• 7004 – Salaries and Wages – Classified and Non-classified Non-permanent Full-time Employees
• 7005 – Salaries and Wages – Classified and Non-classified Non-permanent Part-time Employees
• 7006 – Salaries and Wages – Hourly Full-time Employees
• 7007 – Salaries and Wages – Hourly Part-time Employees
• 7008 – Higher Education Salaries – Faculty/Academic Employees
• 7009 – Higher Education Salaries – Faculty/Academic Equivalent Employees
• 7010 – Higher Education Salaries – Professional/Administrative Employees
• 7011 – Higher Education Salaries – Extension – Professional/Administrative Employees
• 7014 – Higher Education Salaries – Student Employees
• 7015 – Higher Education Salaries – Classified Employees
• 7016 – Salaries and Wages – Employees Receiving Twice-a-month Salary Payment
• 7017 – One-time Merit Increase
• 7018 – Hardship Stations Pay
• 7019 – Compensatory Time Pay
• 7020 – Hazardous Duty Pay
• 7021 – Overtime Pay
• 7022 – Longevity Pay
• 7023 – Lump Sum Termination Payment
• 7024 – Termination Pay – Death Benefits
• 7025 – Compensatory or Salary Per Diem
• 7028 – Productivity Bonus Awards
• 7031 – Emoluments and Allowances
• 7032 – Employees Retirement – State Contribution
• 7035 – Stipend Pay – Revised
• 7037 – Incentive Award for Authorized Service to Veterans – Revised
• 7041 – Employee Insurance Payments – (Employer Contribution)
• 7043 – FICA Employer Matching Contribution
• 7046 – Food Stamp Bonus Pay
• 7047 – Recruitment and Retention Bonuses
• 7048 – Performance Rewards
• 7050 – Benefit Replacement Pay
• 7051 – Severance Pay

The following is an example of the governmental funds entry.

Accounting effect of above entries:

Annual Financial Working Papers are available under the Long-Term Liability Basis Conversion and BTA Working Papers section to assist in the preparation of the governmental fund (FT12) and proprietary fund (FT05) journal entries.