Basic Accounting Concepts for UF Fiscal Administrators

1. Basic Accounting Concepts for UF Fiscal Administrators August 29, 2013

2. Housekeeping • Sign-in roster available later – get credit! • Restrooms • Cell phones, pagers, text messaging, IM • Break • Evaluation

3. 5 1 WHAT’S THIS? This icon on a presentation slide points you to the page number in your Study Guide where you can find the content you’re viewing in the PowerPoint presentation. Our Goal Today • Develop a foundation of knowledge for understanding the basic accounting principles and key accounting processes that impact University operations on a daily basis

4. Today’s Objectives • Identify and define the basic accounting principles that determine how UF’s finances are managed • Explain how the daily transactions at UF are entered into our accounting system and how they are organized • Discuss and identify some of the financial reports that we obtain from the UF Accounting System and how they assist departments in reconciling their revenue and expenses

5. Why Does “Accounting at UF” Matter to Me? • To do your job effectively you need to know how the daily transactions and financial management of those transactions fit within UF’s Accounting System and are required to maintain the integrity of UF’s financial information

6. We All Use Accounting… • Balancing checkbook • Buying a new car • Purchasing a home • Filing income tax returns • Everyone receives money and spends money, and accounting is the procedure by which we record these activities

7. We All Use Accounting… • In all of your personal financial transactions there are basic concepts that factor into your decisions… • Cash on hand • Ability to finance • Balance in checking account • Expected income • It is the same concept in business, and we have specific processes we follow to make those decisions

8. 6 Basic Accounting Equation • In order to understand these processes it is important to know the basic concepts we rely on to establish our financial position and correctly report our financial activities

10. What UF has Others have claim UF has claim Basic Accounting Equation • The Basic Accounting Equation reflects an • entity’s financial position Assets = Liabilities + Net Assets

11. Basic Accounting EquationAssets • Cash • Investments • Accounts Receivable • Inventories • Prepaid Expenses • Land/Buildings • Furniture • Equipment AssetsResources owned or held by UF that have monetary value

12. Basic Accounting EquationAssets • Accounts Receivable: Money owed for goods or services rendered which have been received • Inventory: Raw materials, work-in-process goods and completely finished goods that are assets which are ready or will be ready for sale

13. Basic Accounting EquationAssets • We have two primary types of assets: • Current • Non-current

14. Basic Accounting EquationAssets • Current Assets: Assets that could be converted to cash in less than one year; can be easily liquidated; in some cases these represent the source of funds for day-to-day operations • Includes cash and cash equivalents, accounts receivable, inventory, prepaid expenses, and other assets • For example, the Student Health Center maintains pharmaceutical inventory

15. Basic Accounting EquationAssets • Non-Current Assets: An asset which is not easily convertible to cash or not expected to become cash within the next year • Includes property/buildings, leasehold improvements, and intangible assets • For example, our research yields new information. We can obtain licenses to sell the rights to this information

16. Basic Accounting EquationAssets • Current Assets: • Inventory • Accounts receivable due within one year • Cash and investments used for normal operations • Intended for sale • Lasts less than one year • Non-Current Assets: • Property, buildings, equipment, construction in progress • Cash and investments not used for normal operations • Not intended for sale • Lasts more than one year

17. Non-Current Current Basic Accounting EquationAssets • Equipment: Computers, lab refrigerators, research equipment, vehicles • Cash: Cash in the bank • Inventory: Physical Plant, Building Maintenance Supplies; Student Health Care Center - Pharmacy • Receivables: Billing for services provided; e.g., educational outreach Which assets are current/ non-current?

18. Basic Accounting EquationLiabilities • Accounts payable (unpaid but received) • Must be paid at a specified time • Accrued liabilities for salaries and wages • Long term debts • Bonds LiabilitiesAmounts owed to others

19. Basic Accounting EquationLiabilities • Accounts payable: Represents our obligation to pay off a short-term debt to our creditors • Accrued liabilities: Accounting expense recognized in the books before it is paid 

20. Basic Accounting EquationLiabilities • Examples of liabilities at UF: • Accounts payable - Invoices for office supplies or other expenses • Accrued liabilities - Employee salaries or wages owed • Long term debts - For items purchased by financing agreements What are the liabilities for your department?

21. Basic Accounting EquationNet Assets • Net Assets (or fund balance equity) • For UF, our net assets are tied to our fund structure • What is left when we subtract our liabilities from our assets: • Assets - Liabilities = Net Assets • In private sector this is referred to as capital or retained earnings

22. Assets – Liabilities = Net Assets What UF has Others have claim UF has claim Basic Accounting EquationNet Assets • Let’s look at our accounting equation again • Recall, at UF our Net Assets are represented by the difference between our assets and liabilities

23. Basic Accounting Equation • Any Questions?

24. 8 Accounting at UF

25. 8 Accounting at UF • How do we organize all of the financial data so that we record all of our transactions for money in and money out correctly?

26. Accounting at UFDouble-Entry Accounting • Purpose of double-entry (two-sided) accounting • Both the assets and liabilities of a business are accounted for • Helps to show the give-and-receive of transactions that a business engages in • We operate in double-entry accounting through the use of debits and credits

27. Accounting at UFDebits and Credits • Purpose of debits and credits • Ensures that both sides of the accounting equation are in balance • Every transaction requires the same total value for the debits on one side and credits on the other • Provides a system of checks and balances

28. Assets / Expense Accounts Increased Decreased Debit Credit Liability / Revenue Accounts Decreased Increased Debit Credit Accounting at UFDebits and Credits • Asset and expense accounts- increased by debit entries (in myUFL +) • Liability and revenue accounts- increased by credit entries (in myUFL -)

29. 9 Cash (-)$5,000 0 Asset (+)$5,000 = Accounting at UFHow Does This Work at UF? • Purchase a biomedical freezer costing $5,000 • What is changing in our equation in this scenario? (Assets = Liabilities + Net Assets) • Increasing asset of $5,000 (biomed freezer) with a debit entry • Decreasing cash by $5,000 (purchase) with a credit entry

30. Asset (+)$5,000 Liability (-)$5,000 = Accounting at UFHow Does This Work at UF? • Finance the biomedical freezer? • What is changing in our equation in this scenario? (Assets = Liabilities + Net Assets) • Increasing asset by $5,000 (biomed freezer) with a debit entry • Increasing liability by $5,000 (finance) with a credit entry

31. Cash (-)$5,000 Liability (+)$5,000 = Accounting at UFHow Does This Work at UF? • Pay off the biomedical freezer? • What is changing in our equation in this scenario? (Assets = Liabilities + Net Assets) • Decreasing asset by $5,000 (cash to payoff) with a credit entry • Decreasing liability by $5,000 (fin. purchase) with a debit entry

32. In myUFL: - Debit is recorded as a positive (+) amount - Credit is recorded as a negative (-) amount Accounting at UFReview of Debits and Credits • Whether a debit or credit increases or decreases an account balance depends on the type of account • Asset and expense accounts- increased by debit entries • Liability and revenue accounts- increased by credit entries

33. In myUFL: - Debit is recorded as a positive (+) amount - Credit is recorded as a negative (-) amount Accounting at UFReview of Debits and Credits • Conversely, • Asset and expense accounts- decreased by credit entries • Liability and revenue accounts- decreased by debit entries

34. Revenues Increase Net Assets Increased Debit Credit Expenses Decrease Net Assets Increased Decreased Decreased Debit Credit Accounting at UFReview of Debits and Credits • Net Assets

35. Accounting at UFHow Does This Work at UF? Debits/credits in a regular voucher in myUFL

36. Accounting at UFHow Does This Work at UF? Debits/credits in a regular voucher in myUFL

37. Accounting at UFHow Does This Work at UF? Regular voucher with accounting entries

38. Accounting at UFHow Does This Work at UF? Regular voucher with accounting entries

39. Accounting at UF • Any Questions?

40. 10 Funding Sources

41. 10 Funding SourcesUF Differs From Private Business • University of Florida • Emphasis is on accountability (how the $ was spent) • UF: state funding, sponsored projects, donations/transfers by component units • Private Business • Emphasis on profit • Return to investors • Company relies on investors and revenue

42. Funding SourcesFund Accounting • UF uses Fund Accounting to establish accountability • Classifies money according to the objective or the purpose for which it will be used • Each fund is a self-balancing set of accounts (i.e., checkbook) • Provides for diverse financial resources w/ different external and legal restrictions and limitations

43. Funding SourcesFund Accounting • All transactions are placed in one of several funds • Separating transactions allows for accountability to government, donor agencies and other stakeholders • Type of fund used may determine spending controls, budget year, and other rules associated with tracking and reporting

44. Funding SourcesJargon Alert! • We will reference three concepts that are important to distinguish: • “funds” • Fund • Source of Funds

45. SP AUX FL CU Funding SourcesFive Sources • Let’s look at UF’s funding sources: • State of Florida— Yellow • Component Units—Green • Sponsored Projects—Purple • Auxiliaries—Blue • Residuals/Returned Overhead—Pink

46. FL Funding SourcesState of Florida • Funding comes from: • Legislature appropriated money • Student tuition, lottery funds • Budget-based (budget allocated, funds spent) • Example: • 101 E&G, Gen Rev- Main Campus • 102 E&G, Gen Rev- HSC • 103 E&G, Gen Rev- IFAS • 105 E&G, Gen Rev- Strategic Fund

47. CU Funding SourcesComponent Units • Funding comes from: • UF Foundation • Faculty Practice Plans • Cash-based (no budget required, only cash) • Example: • 171 Transfer from Component Units • 213 UFRF Allocations

48. SP Funding SourcesSponsored Projects • Funding comes from: • Federal, state, non-government sources • Governed by the Division of Sponsored Research • Administered by three C&G offices: Main, IFAS, and Engineering • Budget-based (budget allocated, funds spent) • Example: • 201 C&G Federal Restricted • 209 C&G Other Restricted

49. AUX Funding SourcesAuxiliaries • Funding comes from: • Reitz Union • Transportation and Parking Services • Use is based on programmatic purpose • Cash-based (no budget required, only cash) • Example: • 141 Aux-Reitz Union Fund • 142 Aux-Transportation and Parking

50. Funding SourcesResiduals/Returned Overhead • Funding comes from: • Indirect cost recovery • Unused federal and other restricted grant funds • Cash-based (no budget required only cash) • Example: • 211 Returned Overhead • 212 Residual Funds