CHAPTER 2: ACCOUNTING PROCEDURES

Return to CHAPTER 2: ACCOUNTING PROCEDURES

SUBSECTION 2.2.5.5
ILLUSTRATIVE ENTRIES

2.2.5.5.1

General

Effective Date:

Sept. 1, 1998

The following entries illustrate transactions affecting liabilities and equity. These entries are for illustrative purposes only and should not be considered all-inclusive. Entries posted to GL Code Series 71XX "In-Process" in treasury and treasury trust accounts also require an entry from the Office of State Treasurer as illustrated below to clear the In-Process GL Codes.

The entry would be reversed for In-Process debit amounts.

Dr.

Cr.

In-Process (71XX)

xxx

Current Treasury Cash Activity (OST Only) (4310)

xxx

2.2.5.5.2

Establishment of Short-Term Liabilities

Effective Date:

Sept. 1, 1998

To record the accrual of expenditures/expenses for goods and services from a vendor invoice. (Refer to Section 2.2.5.1.2.c.)

Dr.

Cr.

Accrued Expenditures/Expenses (6505)

xxx

Appropriate Payable Account (51XX)

xxx

2.2.5.5.3

Payment of Short-Term Liabilities

Effective Date:

Sept. 1, 1998

To record payment of a short-term liability.

Dr.

Cr.

Appropriate Payable Account (51XX)

xxx

Cash in Bank (1110) or Warrants In-Process (7120)

xxx

Dr.

Cr.

Cash Expenditures/Expenses (6510)

xxx

Accrued Expenditures/Expenses (6505)

xxx

2.2.5.5.4

Deferred Revenue

Effective Date:

Sept. 1, 1998

2.2.5.5.4.a

To record cash received from the federal government in advance of providing goods or services as required under a grant program. (Refer to Section 2.2.5.1.4.)

Dr.

Cr.

Cash in Bank (1110) or In-Process (71XX)

xxx

Deferred Revenue - Short-Term (5192)

xxx

2.2.5.5.4.b

To record recognition of revenue from a federal grant program subsequent to making eligible grant related expenditures.

Dr.

Cr.

Deferred Revenue - Short-Term (5192)

xxx

Cash Revenue (3210) Revenue Source Code (03XX)

xxx

2.2.5.5.5

Fund Bonded Debt Issuance and Servicing

Effective Date:

Sept. 1, 1998

The following example will be used to illustrate entries for recording the issuance and servicing of bonds in a non-appropriated proprietary account. (Refer to Section 2.2.5.2.2.c (1).) The agency issues bonds with a face amount of $5,000, with a $200 original issue discount (OID) and with issue costs of $80. (Note: Discounts that are related to underwriters’ fees are handled consistent with other issue costs. OID, resulting when the market rate of interest exceeds the stated rate on the bonds, is illustrated in these entries.) The issue is to be repaid in equal installments over 10 years, beginning next year. Interest is payable at 6% per year on the outstanding balance. (If bond issue costs are deemed immaterial, they may be expensed through GL Code 6510 "Cash Expenditures/Expenses" using Sub-object PC "Other Debt Services.")

2.2.5.5.5.a

To record the issuance of the bonds.

Dr.

Cr.

Unamortized Bond Issue Costa (1920)

80

Unamortized Discount on Bonds Sold (1910)

200

Cash in Bank (1110)

4,720

Revenue Bonds Payable - Long-Term (5262)

5,000

2.2.5.5.5.b

To reclassify to short term that portion of principal due within 12 months.

Dr.

Cr.

Revenue Bonds Payable - Long-Term (5262)

500

Revenue Bonds Payable - Short-Term (5162)

500

2.2.5.5.5.c

To record the payment of the first year’s debt service.

Dr.

Cr.

Revenue Bonds Payable - Short-Term (5162)

500

Cash Expenditures/Expenses (6510) (Subobject PB)

300

Cash in Bank (1110)

800

2.2.5.5.5.d

To record annual amortization of deferred issue costs and bond discount on a straight-line basis.

Dr.

Cr.

Amortization Expense (6512) (Subobject WB)

28

Unamortized Bond Issue Costs (1920)

8

Unamortized Discount on Bonds Sold (1910)

20

2.2.5.5.5.e

To reestablish as short-term that portion of principal due within the next 12 months.

Dr.

Cr.

Revenue Bonds Payable - Long-Term (5262)

500

Revenue Bonds Payable - Short-Term (5162)

500

NOTE: If this were a budgeted proprietary account, bond proceeds would be recorded as revenue by a credit to GL Code 3210 Revenue Source Code 0460, and then adjusted for GAAP reporting purposes through GL Code 3225 Revenue Source Code 0460 to GL Code 5262. Likewise, payments on bond principal would be initially recorded as an expenditure by a debit to GL Code 6510 Sub-object PA, and then adjusted for GAAP reporting purposes through GL Code 6525 Sub-object PA.

2.2.5.5.6

General Obligation Bond Debt Issuance and Servicing

Effective Date:

Sept. 1, 1998

The following example will be used to illustrate entries for recording the issuance and servicing of general government bonded debt: par value $5,000, original issue discount $200, underwriters discount $60, issue costs $20, interest rate 6%, first year principal payment $500. (Refer to Section 2.2.5.2.2.c (2).) Proceeds of the debt issue will be used to build a facility to house a general governmental agency.

2.2.5.5.6.a

To record the issuance of the bonds.
Office of the State Treasurer:

Capital Projects Account:

Dr.

Cr.

Current Treasury Cash Activity (OST Only) (4310)

4,700

Cash Expenditures/Expenses (6510) (Subobject PC)

80

Cash Revenues (3210) Revenue Source Code (0460) Bond Proceeds

4,800

General Long-Term Obligations Account Group (Account 999):

Dr.

Cr.

Amount to be Provided for Retirement of Long-Term Obligations (1820)

5,000

General Obligation Bonds Payable (5261)

5,000

2.2.5.5.6.b

To record a debt service transfer from an operating account to a debt service fund type account for a reimbursable bond.
Office of the State Treasurer:

Operating Account:

Dr.

Cr.

Cash Revenues (3210) Revenue Source Code (0784)
Operating Transfers - Debt Service Reimbursements

800

Journal Vouchers In-Process (7140)

800

General Fund - Basic Account (001):

Dr.

Cr.

Journal Vouchers In-Process (7140)

800

Cash Revenues (3210) Revenue Source Code (0784) Operating Transfers - Debt Service Reimbursements

800

Dr.

Cr.

Cash Revenues (3210) Revenue Source Code (0784) Operating Transfers - Debt Service Reimbursements

800

Journal Vouchers In-Process (7140)

800

Debt Service Account (3XX):

Dr.

Cr.

Journal Vouchers In-Process (7140)

800

Cash Revenues (3210) Revenue Source Code (0784) Operating Transfers - Debt Service Reimbursements

800

General Long-Term Obligations Account Group (Account 999):

Dr.

Cr.

Amount Available in Debt Service Funds (1810)

800

Amount to be Provided for Retirement of Long-Term Obligations (1820)

800

Note: To record a debt service transfer for debt service paid from general state revenues:

BOND RETIREMENT AND INTEREST (AGENCY 010)

General Fund - Basic Account (001):

Dr.

Cr.

Cash Expenditures/Expenses (6510) )Subobject MP)

Cash Expenditures/Expenses (6510) (Subobject MI)

300

500

Journal Vouchers In-Process (7140)

800

Debt Service Account (3XX):

Dr.

Cr.

Journal Vouchers In-Process (7140)

800

Cash Expenditures/Expenses (6510) (Subobject MB)

Cash Expenditures/Expenses (6510) (Subobject MA)

300

500

General Long-Term Obligations Account Group (Account 999):

Dr.

Cr.

Amount Available in Debt Service Funds (1810)

800

Amount to be Provided for Retirement of Long-Term Obligations (1820)

800

2.2.5.5.6.c

To record a debt service payment.

Debt Service Account (3XX):

Dr.

Cr.

Cash Expenditures/Expenses (6510) (Subobject PA)

Cash Expenditures/Expenses (6510) (Subobject PB)

500

300

Journal Vouchers In-Process (7140)

800

General Long-Term Obligations Account Group (Account 999):

Dr.

Cr.

General Obligations Bonds Payable - Long-Term (5261)

500

Amount to be Provided for Retirement of Long-Term Obligations (1820)

500

Dr.

Cr.

Amount to be Provided for Retirement of Long-Term Obligations (1820)

800

Amount Available in Debt Service Funds (1810)

800

2.2.5.5.7

Lease-Purchase Agreements

Effective Date:

Sept. 1, 1998

2.2.5.5.7.a

GOVERNMENTAL AND EXPENDABLE TRUST FUND TYPE ACCOUNTS
The following example will be used to illustrate the lease purchase entries. (Refer to Section 2.2.5.2.3.) An agency operating from the general fund, basic account entered into an agreement to lease a copying machine with a fair value of $15,000 for 60 months at the rate of $300 per month. The current interest rate is 12 percent and the present value of the minimum lease payments is $13,621 (annuity due). Since the present value of the minimum lease payments and the fair value are more than $10,000, this purchase meets the state's criteria for a capital lease. The amount to be capitalized is $13,621, which is the lesser of the fair value and net present value. Therefore, the entries to be recorded at the inception of the lease are as follows:

2.2.5.5.7.a(1)
Capital Lease Purchase of Fixed Assets

Operating Account:

Dr.

Cr.

Fixed Assets Acquisition by Lease/Installment Purchase (6514) (Subobject JC)

13,621

Non-cash Other Financing Sources (3221) Revenue Source Code (0709) Noncash Capital Lease Acquisition

13,621

General Fixed Assets Account Group (Account 997):

Dr.

Cr.

Furnishings and Equipment (2410)

13,621

Investment in General Fixed Assets (98XX)

13,621

General Long-Term Obligations Account Group (Account 999):

To record the cost, excluding interest, of the long-term liability for the asset financed.

Dr.

Cr.

Amount to be Provided for Retirement of Long-Term Obligations (1820)

13,621

Lease-Purchase Agreements Payable - Long-Term (5272)

13,621

Note: The current rate of interest, for computing present value, may be obtained by contacting the OFM Accounting Consultant assigned to your agency. Capital leases are computed as annuities due because the payments are made at the first of the month; other capital purchases may be computed as ordinary annuities.

2.2.5.5.7.a(2)

First Periodic Payment on a Capital Lease-Purchase Agreement--To record a periodic payment of lease-purchase liability.

Note: No interest is accrued because the first lease payment is made at the beginning of the first month of the lease.

Operating Account:

Dr.

Cr.

Cash Expenditures/Expenses (6510) (Subobject PA)

300

Cash in Bank (1110) or Warrants in Process (7120)

300

General Long-Term Obligations Account Group (Account 999):

To reduce the lease-purchase liability by the amount of periodic payment on the principal due.

Dr.

Cr.

Lease-Purchase Agreements Payable - Long-Term (5272)

300

Amount to be Provided for Retirement of Long-Term Obligations (1820)

300

2.2.5.5.7.a(3)
Second Periodic Payment on a Capital Lease-Purchase Agreement

Operating Account:

To record the second periodic payment of lease-purchase liability.

Note interest computation: $13,621 less the first month's payment $300, times one percent the monthly interest rate.

Dr.

Cr.

Cash Expenditures/Expenses (6510) (Subobject PA)

Cash Expenditures/Expenses (6510) (Subobject PB)

167

133

Cash in Bank (1110) or Warrants In-Process (7120)

300

General Long-Term Obligations Account Group (Account 999):

To reduce the lease-purchase liability by the amount of periodic payment on the principal due.

Dr.

Cr.

Lease-Purchase Agreements Payable - Long-Term (5272)

167

Amount to be Provided for Retirement of Long-Term Obligations (1820)

167

2.2.5.5.7.b
Proprietary and similar Trust Fund Type Accounts

Using the same example as in (a) above, the entries would be as follows:

2.2.5.5.7.b(1)
Capital Lease-Purchase of a Fixed Asset

To record the cost, excluding interest, of the asset financed. The current lease liability represents that portion of the lease obligations due within one year and the long-term liability represents lease obligations maturing thereafter.

Dr.

Cr.

Furnishings and Equipment (2410)

13,621

Lease-Purchase Agreements Payable - Short-Term (5172)

Lease-Purchase Agreements Payable - Long-Term (5272)

2,229

11,392

2.2.5.5.7.b(2)
First Periodic Payment on a Capital Lease-Purchase Agreement

To record a periodic payment of a lease-purchase liability. The entire payment of the principal due is charged to the current lease-purchase agreements payable. No interest is accrued because the payment is made at the beginning of the first month of the lease.

Dr.

Cr.

Lease-Purchase Agreements Payable - Short-Term (5172)

300

Cash in Bank (1110) or Warrants in Process (7120)

300

Budgeted proprietary and similar trust fund type accounts require an additional entry to record an appropriated disbursement for the portion of the payment applicable to the principal.

Dr.

Cr.

Cash Expenditures/Expenses (6510) (Subobject PA)

300

Expense Adjustments/Eliminations (GAAP) (6525) (Subobject PA)

300

2.2.5.5.7.b(3)
Identification of Current Lease-Purchase Liability

To record the additional principal portion of the lease-purchase liability due within one year after one month.

Dr.

Cr.

Lease-Purchase Agreements Payable - Long-Term (5272)

186

Lease-Purchase Agreements Payable - Short-Term (5172)

186

2.2.5.5.7.b(4)
Second Periodic Payment on a Capital Lease-Purchase Agreement

To record the second periodic payment of a lease-purchase liability paid from an appropriated account. Payment of the principal due is charged to the current lease-purchase agreements payable.

Dr.

Cr.

Cash Expenditures/Expenses (6510) (Subobject PB)

Lease-Purchase Agreements Payable - Short-Term (5172)

133

167

Cash in Bank (1110) or Warrants in Process (7120)

300

Budgeted proprietary and similar trust fund type accounts require an additional entry to record the appropriated disbursement. The amount to be recorded is the portion of the payment applicable to the principal.

Dr.

Cr.

Cash Expenditures/Expenses (6510) (Subobject PA)

167

Expense Adjustments/Eliminations (GAAP) (6525) (Subobject PA)

167

.2.5.5.7.b(5)
Identification of Current Lease-Purchase Liability

To record the principal portion of the lease-purchase liability due within one year after one month.

Dr.

Cr.

Lease-Purchase Agreements Payable - Long-Term (5272)

188

Lease-Purchase Agreements Payable - Short-Term (5172)

188

2.2.5.5.7.c
COMPUTATION OF PRESENT VALUE ANNUITIES

Any annuity is a series of equal payments made at regular intervals of time. The time intervals between payments are called payment periods. An annuity is a compound interest situation with periodic payments. When the payments are made at the end of the payment periods, the annuity is called an ordinary annuity. When the payments are made at the beginning of the payment periods, the annuity is called an annuity due.

Computation of present value may be achieved by use of the following formulas:

Where

Pv = present value factor
i = interest rate
n = number of periods

Ordinary Annuity/Present Value Formula-- A loan is a prime example of this annuity situation in which a sum of money is to be repaid with interest by certain payments for a fixed number of periods. The present value of the loan can be computed by multiplying the periodic loan payments by the present value factor. The present value factor is calculated by using the following formula:

1

Pv = 1- (1+i)n

i

Annuity Due/Present Value Formula--Rent or lease situations are common examples of this type of annuity. The present value of the rent or lease can be computed by multiplying the periodic rent/lease payments by the present value factor. The present value factor is calculated by using the following formula:

(However, the formula need not be used, since tables showing present values computed with the formula at various interest rates are readily available.)

1

Pv = 1- (1+i)n-1

and adding 1 to the computed amount

i

2.2.5.5.8

Equipment/Real Estate Acquisition Certificates of Participation

Effective Date:

Sept. 1, 1998

2.2.5.5.8.a

GOVERNMENTAL AND EXPENDABLE TRUST FUND TYPE ACCOUNTS
(Agency Entries)
The following example will be used to illustrate entries for an equipment/real estate acquisition certificates of participation (COPs). (Refer to Section 2.2.5.2.4.) The Office of the State Treasurer (OST) negotiates a $15,000 COP issue. An agency operating from the general fund, basic account acquires a piece of equipment for $10,000, financing it through the OST COP program. Terms of the agreement require first year debt service in the amount of $2,000 principal and $600 interest. The trustee sets aside $500 in a reserve account.

2.2.5.5.8.a(1)
To record the acquisition of equipment through COP financing.

Operating Account:

Dr.

Cr.

Fixed Assets Acquisitions by Lease/Installment - Purchase (6514) (Subobject JC)

10,000

Non-cash Other Financing Sources (3221) Revenue Source Code (0707) Noncash Certificates of Participation

10,000

General Fixed Assets Account Group (Account 997):

Dr.

Cr.

Furnishings and Equipment (2410)

10,000

Investment in General Fixed Assets (98XX)

10,000

General Long-Term Obligations Account Group (Account 999):

Dr.

Cr.

Amount to be Provided for Retirement of Long-Term Obligations (1820)

10,000

Certificates of Participation/Notes Payable - Long-Term (5273)

10,000

2.2.5.5.8.a(2)
First annual debt service payment

Operating Account:

Dr.

Cr.

Cash Expenditures/Expenses (6510) (Subobject PD)

Cash Expenditures/Expenses (6510) (Subobject PE)

2,000

600

Cash in Bank (1110) or Warrants In-Process (7120)

2,600

General Long-Term Obligations Account Group (Account 999):

Dr.

Cr.

Certificates of Participation/Notes Payable - Long-Term (5273)

2,000

Amount to be Provided for Retirement of Long-Term Obligations (1820)

2,000

2.2.5.5.8.b
Proprietary and Similar Trust Fund Type Accounts (Agency Entries)

For purposes of illustrating the acquisition of equipment with COP financing in a proprietary and similar trust fund type account, the following entries use the same example as in (a) above.

2.2.5.5.8.b(1)
Acquisition of equipment though COP financing

To record the cost of an asset financed through COP. The short-term COP payable represents that portion of the obligation due within one year and the long-term liability represents COP payable maturing thereafter.

Dr.

Cr.

Furnishings and Equipment (2410)

10,000

Certificates of Participation/Notes Payable - Short-Term (5173)

Certificates of Participation/Notes Payable -Long-Term (5273)

2,000

8,000

2.2.5.5.8.b(2)
First annual debt service payment

To record payment of COP liability in an appropriated account. Payment of the principal is first applied to the short-term portion of the COP liability and any additional principal payment is charged to the long-term portion of the COP obligations.

Dr.

Cr.

Cash Expenditures/Expense (6510) (Subobject PE)

Certificates of Participation/Notes Payable - Short-Term (5173)

600

2,000

Cash in Bank (1110) or In-Process (71XX)

2,600

Budgeted proprietary and similar trust fund type accounts require an additional entry to record the appropriated disbursements. The amount to be recorded is the portion of the payment applicable to the principal.

Dr.

Cr.

Cash Expenditures/Expense (6510) (Subobject PD)

2,000

Expense Adjustment/Eliminations (GAAP) (6525) (Subobject PD)

2,000

An additional entry is required to adjust GL Code 5173 "Certificates of Participation/Notes Payable - Short-Term" to reflect that portion of the COP due within one year following the payment. The adjustment of GL Code 5173 is through GL Code 5273 "Certificates of Participation/Notes Payable - Long-Term."

2.2.5.5.8.c
Office of the State Treasurer (OST) eNTRIES

Using the same example as in (a) above, OST entries are as follows:

2.2.5.5.8.c(1)
Negotiation of the COP issue with the financial institution.

Capital Lease Program Account (Account 739):

Dr.

Cr.

Cash and Investments with Escrow Agents and Trustees (1140)

15,000

Other Liabilities (5199)

Non-cash other Financing Sources (3221) Revenue Source Code (0707) Noncash Certificate of Participation

14,500

500

General Long-Term Obligations Account Group (Account 999):

NOTE: Entry is composed of $500 reserve.

Dr.

Cr.

Amount to be Provided for Retirement of Long-Term Obligations (1820)

500

Certificates of Participation/Notes Payable - Long-Term (5273)

500

2.2.5.5.8.c(2)
OST finances agency purchase of equipment through COP.

Capital Lease Program Account (Account 739):

Dr.

Cr.

Other Liabilities-Short-Term (5199)

10,000

Cash and Investments with Escrow Agents and Trustees (1140)

10,000

2.2.5.5.8.c(3)
OST receives payment from agency.

Capital Lease Program Account (Account 739):

Dr.

Cr.

In-Process (71XX)

2,600

Due to Fiscal Agents - Short-Term (5130)

2,000

2.2.5.5.8.c(4)
OST makes payment to fiscal agent.

Capital Lease Program Account (Account 739):

Dr.

Cr.

Due to Fiscal Agents - Short-Term (5130)

2,600

Warrants In-Process (7120)

2,600

2.2.5.5.8.c(5)
Fiscal year end ending adjusting entry to reserve fund balance for reserves held by trustee, which do not represent available spendable resources.

Capital Lease Program Account (Account 739):

Dr.

Cr.

Unreserved/Undesignated Fund Balance (9590)

500

Reserved for Cash/Investments with Trustees (9558)

500

2.2.5.5.9

Construction Certificates of Participation

Effective Date:

Sept. 1, 1998

The following example will be used to illustrate entries for construction certificates of participation (COP). (Refer to Section 2.2.5.2.4.) An agency operating from the general fund, basic account, in conjunction with the Office of the State Treasurer (OST) and the Department of General Administration (GA), with proper legislative approval, negotiates a $75 million COP. Of the issue, $60 million is available to pay for construction costs and interest due during the construction period, $7 million is set aside in a reserve fund, and the balance is expended on issue costs. Ten million dollars is expended on construction in the first year. Debt service requirement for the first year is $4 million, interest only. Unspent construction funds earn $5 million in interest revenue and reserve funds earn an additional $0.6 million.

2.2.5.5.9.a
GOVERNMENTAL AND EXPENDABLE TRUST FUND TYPE ACCOUNTS (Agency Entries)

2.2.5.5.9.a(1)
COP issue is finalized and proceeds become available for construction.

COP Construction Account (Account 241):

Dr.

Cr.

Cash and Investments with Escrow Agents and Trustees (1140)

$60 million

Noncash Other Financing Sources (3221) Revenue Source Code (0707) Noncash Certificates of Participation

$60 million

General Long-Term Obligations Account Group (Account 999):

Dr.

Cr.

Amount to be Provided for Retirement of Long-Term Obligations (1820)

$75 million

Certificates of Participation/Notes Payable - Long-Term (5273)

$75 million

2.2.5.5.9.a(2)
Construction activities begin, expenditures are incurred.

COP Construction Account (Account 241):

Dr.

Cr.

Fixed Asset Acquisitions by Lease Installment – Purchase (6514) (Subobject JF)

$10 million

Cash and Investments with Escrow Agents and Trustees (1140)

$10 million

2.2.5.5.9.a(3)
First year debt service, interest payment only.

COP Construction Account (Account 241):

Dr.

Cr.

Cash Expenditures/Expenses (6510) (Subobject PE)

$4 million

Cash and Investments with Escrow Agents (1140)

$4 million

2.2.5.5.9.a(4)
Interest is earned on cash and investments held by trustee.

COP Construction Account (Account 241):

Dr.

Cr.

Cash and Investment with Escrow Agents and Trustees (1140)

$5million

Cash Revenues (3210) Revenue Source Code (0409) Local Investment/Interest Income

$5 million

2.2.5.5.9.a(5)
Fiscal year end adjusting entry to record construction in progress account.

General Fixed Assets Account Group (Account 997):

Dr.

Cr.

Construction in Progress (2510)

$10 million

Investment in General Fixed Assets (98XX)

$10 million

2.2.5.5.9.b
OFFICE OF STATE TREASURER (OST) (AGENCY 010) ENTRIES

Using the same example as in (a) above, the entries in the OST's books are as follows:

2.2.5.5.9.b(1)
COP issue is finalized and reserve funds are set aside.

Capital Lease Program Account (Account 739):

Dr.

Cr.

Cash and Investments with Escrow Agents and Trustees (1140)

$7 million

Non-cash Other Financing Sources (3221) Revenue Source Code (0707) Noncash Certificates of Participation

$7 million

2.2.5.5.9.b(2)
OST receives payment from agency.

Capital Lease Program Account (Account 739):

Dr.

Cr.

Receipts In-Process (7110) or Journal Vouchers In-Process (7140)

$4 million

Due to Fiscal Agent - Short-Term (5130)

$4 million

2.2.5.5.9.b(3)
OST makes a debt service payment to the fiscal agent.

Capital Lease Program Account (Account 739):

Dr.

Cr.

Due to Fiscal Agents - Short-Term (5130)

$4 million

Warrants In-Process (7120)or Journal Vouchers In-Process (7140)

$4 million

2.2.5.5.9.b(4)
Interest is earned on reserve funds held by trustee.

Capital Lease Program Account (Account 739):

Dr.

Cr.

Cash and Investments with Escrow Agents and Trustees (1140)

$0.6 million

Cash Revenues (3210) Revenue Source Code (0409) Local Investment Interest Income

$0.6 million

2.2.5.5.9.b(5)
Fiscal year end adjusting entry to reserve fund balance for reserves held by trustee, which do not represent available spendable resources.

Capital Lease Program Account (Account 739):

Dr.

Cr.

Unreserved/Undesignated Fund Balance (9590)

$7.6 million

Reserved for Cash/Investments with Trustee (9558)

$7.6 million

2.2.5.5.10

Vendor Payment Advances

Effective Date:

Sept. 1, 1998

To record vendor payment advance transactions. (Refer to Section 2.2.5.3.1.)

2.2.5.5.10.a

Initial Advance

2.2.5.5.10.a(1)
To record the issuance of a vendor payment advance to the State Board for Community and Technical Colleges (SBCTC) or an individual college.

General Fund - Basic Account (Account 001):

Dr.

Cr.

Due From Other Funds - Advances (1656) (with appropriate subsidiary)

xxx

Warrants In-Process (7120)

xxx

2.2.5.5.10.a(2)
To record the deposit of the vendor payment advance by the SBCTC or an individual college.

Institutions of Higher Education - Agency Account (Account 840):

Dr.

Cr.

Cash in Bank (1110)

xxx

Due To Other Funds - Advances - Long-Term (5256) (with appropriate subsidiary)

xxx

2.2.5.5.10.b

Payment for Goods and Services and the Expenditure Recognition

2.2.5.5.10.b(1)
To record the payment to a vendor by the SBCTC or an individual college with the advance.

Institutions of Higher Education - Agency Account (Account 840):

Dr.

Cr.

Due from Other Funds - Advances - Long-Term (1656) (with appropriate subsidiary)

xxx

Cash in Bank (1110)

xxx

2.2.5.5.10.b(2)
To charge the general fund basic account for disbursements made from the vendor payment advance.

General Fund - Basic Account (Account 001):

Dr.

Cr.

Accrued Expenditures/Expenses (6505)

xxx

Due To Other Funds – Advances - Long-Term (5256) (with appropriate subsidiary)

xxx

2.2.5.5.10.c

Reimbursement of Advance Account

2.2.5.5.10.c(1)
To record the reimbursement of the vendor payment advance.

General Fund - Basic Account (Account 001):

Dr.

Cr.

Due To Other Funds - Advances - Long-Term (5256)

xxx

Accrued Expenditures/Expenses (6505)

xxx

Cash Expenditures/Expenses (6510)

xxx

Warrants In-Process (7120)

xxx

2.2.5.5.10.c(2)
To record the deposit of reimbursement received by an individual college.

Institutions of Higher Education - Agency Account (Account 840):

Dr.

Cr.

Cash in Bank (1110)

xxx

Due From Other Funds - Advances - Long-Term (1656)

xxx

2.2.5.5.10.d

Close of Advance Account and Return Outstanding Balance - Early in New Biennium

2.2.5.5.10.d(1)
To close the vendor payment advance at the close of the biennium. Example assumes June expenditures against the advance were less the initial advance.

Institutions of Higher Education - Agency Account (Account 840):

*amount of the initial advance

Dr.

Cr.

Due To Other Funds - Advances - Long-Term (5256)

xxx

Due From Other Funds - Advances - Long-Term (1656)

xxx

Due From Other Funds - Advances - Long-Term (1656)

xxx

Cash in Bank (1110)

xxx

2.2.5.5.10.d(2)
To record the transmittal to the Office of the State Treasurer of the outstanding cash balance in the vendor payment advance.

General Fund - Basic Account (Account 001):

Dr.

Cr.

Receipts In-Process (7110)

xxx

Due From Other Funds - Advances - Long-Term (1656)

xxx

2.2.5.5.11

Retention of Payments

Effective Date:

Sept. 1, 1998

To record entries related to payments on public works contracts including retained percentages. (Refer to Section 2.2.5.3.2.)

2.2.5.5.9.11.a
Payment to Contractor

To record the amount paid to the contractor on progress billing from an appropriated account.

Dr.

Cr.

Cash Expenditures/Expense (6510)

xxx

In-Process (71XX)

xxx

2.2.5.5.9.11.b
Retained in State Account

To record the amount retained by the state, in a suspense account, from an appropriated account progress billing.

Operating Account:

Dr.

Cr.

Cash Expenditures/Expenses (6510)

xxx

In-Process (71XX)

xxx

Suspense Account (Account 01P):

Dr.

Cr.

In-Process (71XX)

xxx

Retained Percentages Payable - Short-Term (5116)

xxx

2.2.5.5.9.11.c
Retained in Escrow or Interest Bearing Account

To record the amount of retained percentages placed in escrow or in an interest bearing account for an appropriated account.

Operating Account:

Dr.

Cr.

Cash Expenditures/Expenses (6510)

xxx

In-Process (71XX)

xxx

Cash and Investments with Escrow Agents and Trustees (1140)

xxx

Retained Percentages Payable - Short-Term (5116)

xxx

2.2.5.5.9.11.d
Payment of Amounts Retained in State Account

To record the payment of amounts retained by the state in a suspense account from an appropriated account.

Suspense Account (Account 01P):

Dr.

Cr.

Retained Percentages Payable - Short-Term (5116)

xxx

In-Process (71XX)

xxx

2.2.5.5.9.11.e
Payment of Amounts Retained in Escrow or an Interest Bearing Account

To record the payment of amounts retained in escrow or in an interest bearing account.

Operating Account:

Dr.

Cr.

Retained Percentages Payable - Short-Term (5116)

xxx

Cash and Investments with Escrow Agents and Trustees (1140)

xxx

2.2.5.5.12

Claims and Judgments

Effective Date:

Sept. 1, 1998

This illustrative entry of a claims liability displays the accrual of a dispute with the federal government over questioned program costs when it is probable that the state will be required to refund federal revenue. (Refer to Section 2.2.5.3.4.)

Note: The second entry is made to reverse activity previously coded as federal, which is now supported by state funds.

Dr.

Cr.

Accrued Expenditures/Expenses (6505) (Subobject XX)

xxx

Claims and Judgments Payable - Short-Term (5113)

xxx

Cash Revenues (3210) Federal Source Code (03XX)

xxx

Cash Expenditures/Expenses (6510) (Subobject XX)

xxx

2.2.5.5.13

Reservation of Fund Balance

Effective Date:

Sept. 1, 1998

To record an increase in Reserved Fund Balance corresponding to an increase in petty cash so as to indicate that amounts used for petty cash do not represent available spendable resources. (Refer to Section 2.2.5.4.1)

Note: To record a decrease, the entry below is reversed.

Dr.

Cr.

Unreserved/Undesignated Fund Balance (9590)

xxx

Reserved for Petty Cash (9556)

xxx

Return to CHAPTER 2: ACCOUNTING PROCEDURES

The following entries illustrate transactions affecting liabilities and equity. These entries are for illustrative purposes only and should not be considered all-inclusive. Entries posted to GL Code Series 71XX "In-Process" in treasury and treasury trust accounts also require an entry from the Office of State Treasurer as illustrated below to clear the In-Process GL Codes. The entry would be reversed for In-Process debit amounts.
		Dr.	Cr.
In-Process (71XX)		xxx
	Current Treasury Cash Activity (OST Only) (4310)		xxx

To record the accrual of expenditures/expenses for goods and services from a vendor invoice. (Refer to Section 2.2.5.1.2.c.)
		Dr.	Cr.
Accrued Expenditures/Expenses (6505)		xxx
	Appropriate Payable Account (51XX)		xxx

To record payment of a short-term liability.
		Dr.	Cr.
Appropriate Payable Account (51XX)		xxx
	Cash in Bank (1110) or Warrants In-Process (7120)		xxx

		Dr.	Cr.
Cash Expenditures/Expenses (6510)		xxx
	Accrued Expenditures/Expenses (6505)		xxx

2.2.5.5.4.a	To record cash received from the federal government in advance of providing goods or services as required under a grant program. (Refer to Section 2.2.5.1.4.)
			Dr.	Cr.
	Cash in Bank (1110) or In-Process (71XX)		xxx
		Deferred Revenue - Short-Term (5192)		xxx

2.2.5.5.4.b	To record recognition of revenue from a federal grant program subsequent to making eligible grant related expenditures.
			Dr.	Cr.
	Deferred Revenue - Short-Term (5192)		xxx
		Cash Revenue (3210) Revenue Source Code (03XX)		xxx

	The following example will be used to illustrate entries for recording the issuance and servicing of bonds in a non-appropriated proprietary account. (Refer to Section 2.2.5.2.2.c (1).) The agency issues bonds with a face amount of $5,000, with a $200 original issue discount (OID) and with issue costs of $80. (Note: Discounts that are related to underwriters’ fees are handled consistent with other issue costs. OID, resulting when the market rate of interest exceeds the stated rate on the bonds, is illustrated in these entries.) The issue is to be repaid in equal installments over 10 years, beginning next year. Interest is payable at 6% per year on the outstanding balance. (If bond issue costs are deemed immaterial, they may be expensed through GL Code 6510 "Cash Expenditures/Expenses" using Sub-object PC "Other Debt Services.")
2.2.5.5.5.a	To record the issuance of the bonds.
			Dr.	Cr.
	Unamortized Bond Issue Costa (1920)		80
	Unamortized Discount on Bonds Sold (1910)		200
	Cash in Bank (1110)		4,720
		Revenue Bonds Payable - Long-Term (5262)		5,000

2.2.5.5.5.b	To reclassify to short term that portion of principal due within 12 months.
			Dr.	Cr.
	Revenue Bonds Payable - Long-Term (5262)		500
		Revenue Bonds Payable - Short-Term (5162)		500

2.2.5.5.5.c	To record the payment of the first year’s debt service.
			Dr.	Cr.
	Revenue Bonds Payable - Short-Term (5162)		500
	Cash Expenditures/Expenses (6510) (Subobject PB)		300
		Cash in Bank (1110)		800

2.2.5.5.5.d	To record annual amortization of deferred issue costs and bond discount on a straight-line basis.
			Dr.	Cr.
	Amortization Expense (6512) (Subobject WB)		28
		Unamortized Bond Issue Costs (1920)		8
		Unamortized Discount on Bonds Sold (1910)		20

2.2.5.5.5.e	To reestablish as short-term that portion of principal due within the next 12 months.
			Dr.	Cr.
	Revenue Bonds Payable - Long-Term (5262)		500
		Revenue Bonds Payable - Short-Term (5162)		500

2.2.5.5.6.a	To record the issuance of the bonds. Office of the State Treasurer: Capital Projects Account:
			Dr.	Cr.
	Current Treasury Cash Activity (OST Only) (4310)		4,700
	Cash Expenditures/Expenses (6510) (Subobject PC)		80
		Cash Revenues (3210) Revenue Source Code (0460) Bond Proceeds		4,800

General Long-Term Obligations Account Group (Account 999):
		Dr.	Cr.
Amount to be Provided for Retirement of Long-Term Obligations (1820)		5,000
	General Obligation Bonds Payable (5261)		5,000

2.2.5.5.6.b	To record a debt service transfer from an operating account to a debt service fund type account for a reimbursable bond. Office of the State Treasurer: Operating Account:
			Dr.	Cr.
	Cash Revenues (3210) Revenue Source Code (0784) Operating Transfers - Debt Service Reimbursements		800
		Journal Vouchers In-Process (7140)		800

General Fund - Basic Account (001):
		Dr.	Cr.
Journal Vouchers In-Process (7140)		800
	Cash Revenues (3210) Revenue Source Code (0784) Operating Transfers - Debt Service Reimbursements		800

Debt Service Account (3XX):
		Dr.	Cr.
Journal Vouchers In-Process (7140)		800
	Cash Revenues (3210) Revenue Source Code (0784) Operating Transfers - Debt Service Reimbursements		800

General Long-Term Obligations Account Group (Account 999):
		Dr.	Cr.
Amount Available in Debt Service Funds (1810)		800
	Amount to be Provided for Retirement of Long-Term Obligations (1820)		800

Note: To record a debt service transfer for debt service paid from general state revenues:
BOND RETIREMENT AND INTEREST (AGENCY 010) General Fund - Basic Account (001):
		Dr.	Cr.
Cash Expenditures/Expenses (6510) )Subobject MP) Cash Expenditures/Expenses (6510) (Subobject MI)		300 500
	Journal Vouchers In-Process (7140)		800

2.2.5.5.6.c	To record a debt service payment. Debt Service Account (3XX):
			Dr.	Cr.
	Cash Expenditures/Expenses (6510) (Subobject PA) Cash Expenditures/Expenses (6510) (Subobject PB)		500 300
		Journal Vouchers In-Process (7140)		800

General Long-Term Obligations Account Group (Account 999):
		Dr.	Cr.
General Obligations Bonds Payable - Long-Term (5261)		500
	Amount to be Provided for Retirement of Long-Term Obligations (1820)		500
		Dr.	Cr.
Amount to be Provided for Retirement of Long-Term Obligations (1820)		800
	Amount Available in Debt Service Funds (1810)		800

2.2.5.5.7.a(1)	Capital Lease Purchase of Fixed Assets Operating Account:
			Dr.	Cr.
	Fixed Assets Acquisition by Lease/Installment Purchase (6514) (Subobject JC)		13,621
		Non-cash Other Financing Sources (3221) Revenue Source Code (0709) Noncash Capital Lease Acquisition		13,621
	General Fixed Assets Account Group (Account 997):
			Dr.	Cr.
	Furnishings and Equipment (2410)		13,621
		Investment in General Fixed Assets (98XX)		13,621

2.2.5.5.7.a(2)	First Periodic Payment on a Capital Lease-Purchase Agreement--To record a periodic payment of lease-purchase liability. Note: No interest is accrued because the first lease payment is made at the beginning of the first month of the lease. Operating Account:
			Dr.	Cr.
	Cash Expenditures/Expenses (6510) (Subobject PA)		300
		Cash in Bank (1110) or Warrants in Process (7120)		300

General Long-Term Obligations Account Group (Account 999): To reduce the lease-purchase liability by the amount of periodic payment on the principal due.
		Dr.	Cr.
Lease-Purchase Agreements Payable - Long-Term (5272)		300
	Amount to be Provided for Retirement of Long-Term Obligations (1820)		300

2.2.5.5.7.a(3)	Second Periodic Payment on a Capital Lease-Purchase Agreement Operating Account: To record the second periodic payment of lease-purchase liability. Note interest computation: $13,621 less the first month's payment $300, times one percent the monthly interest rate.
			Dr.	Cr.
	Cash Expenditures/Expenses (6510) (Subobject PA) Cash Expenditures/Expenses (6510) (Subobject PB)		167 133
		Cash in Bank (1110) or Warrants In-Process (7120)		300

2.2.5.5.7.b	Proprietary and similar Trust Fund Type Accounts Using the same example as in (a) above, the entries would be as follows:
2.2.5.5.7.b(1)	Capital Lease-Purchase of a Fixed Asset To record the cost, excluding interest, of the asset financed. The current lease liability represents that portion of the lease obligations due within one year and the long-term liability represents lease obligations maturing thereafter.
			Dr.	Cr.
	Furnishings and Equipment (2410)		13,621
		Lease-Purchase Agreements Payable - Short-Term (5172) Lease-Purchase Agreements Payable - Long-Term (5272)		2,229 11,392

2.2.5.5.7.b(2)	First Periodic Payment on a Capital Lease-Purchase Agreement To record a periodic payment of a lease-purchase liability. The entire payment of the principal due is charged to the current lease-purchase agreements payable. No interest is accrued because the payment is made at the beginning of the first month of the lease.
			Dr.	Cr.
	Lease-Purchase Agreements Payable - Short-Term (5172)		300
		Cash in Bank (1110) or Warrants in Process (7120)		300

Budgeted proprietary and similar trust fund type accounts require an additional entry to record an appropriated disbursement for the portion of the payment applicable to the principal.
		Dr.	Cr.
Cash Expenditures/Expenses (6510) (Subobject PA)		300
	Expense Adjustments/Eliminations (GAAP) (6525) (Subobject PA)		300

2.2.5.5.7.b(3)	Identification of Current Lease-Purchase Liability To record the additional principal portion of the lease-purchase liability due within one year after one month.
			Dr.	Cr.
	Lease-Purchase Agreements Payable - Long-Term (5272)		186
		Lease-Purchase Agreements Payable - Short-Term (5172)		186

2.2.5.5.7.b(4)	Second Periodic Payment on a Capital Lease-Purchase Agreement To record the second periodic payment of a lease-purchase liability paid from an appropriated account. Payment of the principal due is charged to the current lease-purchase agreements payable.
			Dr.	Cr.
	Cash Expenditures/Expenses (6510) (Subobject PB) Lease-Purchase Agreements Payable - Short-Term (5172)		133 167
		Cash in Bank (1110) or Warrants in Process (7120)		300

2.2.5.5.7.c	COMPUTATION OF PRESENT VALUE ANNUITIES Any annuity is a series of equal payments made at regular intervals of time. The time intervals between payments are called payment periods. An annuity is a compound interest situation with periodic payments. When the payments are made at the end of the payment periods, the annuity is called an ordinary annuity. When the payments are made at the beginning of the payment periods, the annuity is called an annuity due. Computation of present value may be achieved by use of the following formulas:
	Where
		Pv = present value factor i = interest rate n = number of periods
	Ordinary Annuity/Present Value Formula-- A loan is a prime example of this annuity situation in which a sum of money is to be repaid with interest by certain payments for a fixed number of periods. The present value of the loan can be computed by multiplying the periodic loan payments by the present value factor. The present value factor is calculated by using the following formula: