What is Accounting

1. What is Accounting Accounting is the language used to communicate information about the financial condition and operations of all types of organizations. Using money or currency as its common denominator, accounting is the information system that records, evaluates, compares, and reports the financial activities of an organization. Accounting information serves many purposes depending upon the users of the information. Various groups and individuals, such as managers, deans and directors, vice chancellors, and outside regulatory agencies, use accounting information to make informed decisions about the organization. Accurate and complete accounting information is used to: • Effectively allocate and use an organization’s resources. • Understand the operations and financial activities of an organization. • Evaluate the effectiveness and efficiency of operations. • Make investment decisions.

2. University Accounting Objectives University accounting objectives are similar to those of other types of organizations. Like businesses and corporations, the university is concerned with the effective use and allocation of the organization’s resources, and the accurate and effective reporting of financial activity. However, businesses and corporations operate to maximize their profits while providing goods and services. A university, on the other hand, operates to meet certain needs without a profit motive by providing goods and services; namely education, research, and public service. This fundamental difference is the basis for the special reporting requirements of university accounting. Providers of the funds used by a university to carry out its mission often have special guidelines or restrictions concerning how those funds may be used.

3. University Accounting Overview The terms "university accounting" and "fund accounting" are used by colleges and universities, as well as government and other not-for-profit organizations, to refer to the unique accounting requirements of not-for-profit entities. Since funding for these organizations is often provided by legislative bodies, foundations, and donations, special accounting and reporting requirements are used to account for their financial activities. In Module I of this web-based training series, you were introduced to the University’s financial resources including many of the departments in the Finance Division. Although these groups maintain and administer the University’s official accounting and financial records, much of that information originates with the financial activities in campus departments like yours. In other words, you are a crucial part of the financial reporting process for the University. Therefore, it is critical that you understand the accounting policies and procedures of the University. Understanding the basic structure of University accounts is a good place to begin. Let's get started.

4. Chart of Accounts All of the accounts and the account numbers used by the University are referred to as the chart of accounts. The chart of accounts is a listing of the accounts in a logical order consistent with the layout and structure of financial statements and reports. Classes or groupings of similar accounts are assigned account numbers within specified ranges. This helps ensure more accurate reporting and makes it easier to identify and summarize groupings of similar accounts. The University's chart of accounts is maintained by Financial Affairs. Let's take a look at the components that make up the account number to get a better understanding of the UA accounting structure.

5. Company Cost Center (CCC) A company cost center (normally referred to as cost center) is the smallest classification in our accounting structure hierarchy. It is the basic building block of the Departmental Accounting, Reporting, and Tracking (DART). When any transaction or financial activity takes place, a cost center is used to record the accounting information. Each cost center is assigned a budgetary unit. The University’s cost center structure consists of a 15-digit number made up of four sets of identifiers.

6. Company The first four digits in the company cost center refer to the company to which a cost center belongs. It identifies the type of fund and fund location.

7. Cost Center The next five digits identify the department and/or organizational entity within a department for which financial information is maintained. These company cost centers are assigned to departments by one of three offices depending upon the type of fund. The offices responsible for these accounts are: • Financial Affairs • State appropriations • General funds • Auxiliary funds • Research Accounting • Grants and sponsored programs • Property Accounting • Plant funds • Renewals and replacement funds

8. Cost Center – Function The next two digits identify the function of the cost center. The function code describes the purpose or type of activity for which a cost center will be used. Public Service function codes – begin with 3 30 - Public Service 31 – Public Service 32 - Public Service - Cost-Sharing 33 - University Sponsored Public Service Academic Support functions – begin with 4 40 - Academic Support 41 - Libraries 42 - Museums and Galleries 43 - Organized Activities 44 - Other Academic Support 45 - Academic Support - Cost-Sharing Other function codes Beginning with 5 – Student Services Beginning with 6 – Central Administration Beginning with 7 – Facilities Management Beginning with 8 – Scholarship and Fellowship • Instructional function codes – begin with 1 • 10 - Instruction • 11 - On-Campus Credit Instruction • 12 - Instructional Support • 13 - Off-Campus Credit Instruction • 14 - Non-Credit Instruction • 15 - Instruction Cost-Sharing • 16 - Academic Advising • 17 - Faculty Development • Research function codes – begin with 2 • 20 - Research • 21 - Sponsored Research • 22 – University Supported Research • 23 - Sponsored Research Cost-Sharing • 24 - Agri. Experiment Station Research

9. Cost Center - Project The last four digits of the cost center are used to further define the cost center. Usually referred to as the project. Primarily used for project reporting in the Agricultural Experiment Station area.

10. Departmental Accounting Cost (DAC) The departmental accounting cost center is normally the company cost center, but in the case of the Agri Experiment Station, does not include the last four digits (project) of the cost center number. Special processing is used for Agriculture Experiment Station cost centers where the last four digits in the cost center in the balance file will be set to 0100 (except for companies 0133, 0373 and 0403 which will be set to 0001). Agriculture Experiment Station uses the last four digits of the company cost center (called the project number) to support project accounting. The budgets for these projects, however, are posted to the departmental accounting cost centers (DAC). Expenditures are maintained and tracked at the project level. Normally, Agriculture Experiment Station prefers to view the balances at a summary level and therefore, DART employs the use of the departmental accounting center (DAC) which is defined as agriculture's cost centers ending in 0100 or 0001. All accounting transactions for Agriculture are posted to the cost center and the departmental accounting center which will give them the opportunity to view their financial activity at a departmental accounting center level or the cost center project level.

11. Budgetary Unit (BU) A budgetary unit is an organizational entity that either receives a budget or has staff. It exists between the cost center and department levels. All cost centers are associated with a budgetary unit, and all budgetary units are associated with a department. Only those cost centers associated with the entered budgetary unit will be displayed.

12. Chancellor Provost and Vice Chancellor for Academic Affairs Vice Chancellor for Finance & Administration Vice Chancellor for Government & Community Relations Vice Chancellor for University Advancement Vice Chancellor for Intercollegiate Athletics Affirmative Action Vice Chancellor/Director Level (VC) Dean/Director/Associate Vice Chancellor Level (DDAVC) Departments (DP) Budgetary Units (BU)

14. DART Periods • DART is designed to provide users in departments with flexibility in developing a plan for expenditures from University centers, and in monitoring those expenditures. Thus while we normally think of accounting periods in terms of the past, in DART they are also open far into the future. This means that in some cases you may post an entry that will be effect at a future date, and that entry will not affect balances until the month in which that entry is effective. An example would be an entry of a planned expenditure. Another example would be salary encumbrances (posted in a batch process) that are spread across periods in the fiscal year. DART periods are normally described in terms of a base month. This base month will be either the open period in accounting (per the calender in GJIM), or the period most recently closed. The DART period will remain open longer than accounting periods so that departmental users have some extra time to change the categories on accounting transactions. This may need to be done for various reasons, such as assigning categories to Physical Plant charges. Note that no additional transactions will be posted to the period during this time; it is only for changing the category. There will be a different number of periods open from the base month depending on the type of activity. Entries may be made to budget, estimated revenue, encumbrances, and planned activity across 17 periods into the future. Entries may be made to commitment, revenue, expenditures, pending activity, and transfers across 8 periods into the future. Note that individually these transactions may be further limited by the applications that create them, such as UPS. • A good example of this is the ability to spread University budget and balance forward entries across periods to place the budget in the periods in which the expenditures are expected to occur. Consider an example where March is the base period. Budget of $12 will be posted into the July period by the University. If the department so desires, it may distribute that budget over the periods in that fiscal year (July - June), perhaps in an even distribution of $1 per month. • DART Sequence Codes • DART is designed to provide departmental users with flexiblity in classifying and viewing their accounting transactions. One feature which gives departmental users flexibility in viewing their transactions is the use of sequence codes. A sequence code is a three-character number which defines the order in which categories will be displayed. The code also allows for broad groupings of categories. Each category is assigned a sequence code when it is created. There are two types of sequence codes: institutional and departmental. Institutional sequence codes are the institutionally-generated sequence codes that are assigned at the time a category is created. Departmental sequence codes are the unique sequence codes that the departmental user assigns to the category when the user adds the category to their company cost center. A departmental user has the option of using the sequence codes as they are assigned or they may change them via the CDC (Center Dept Category maintenance) function at the time the user establishes their company cost center/category combinations. • It is important to keep in mind when establishing your own sequence codes which categories you want to be grouped together. For example, computer supplies (SupComp) has a sequence code of 002 and computer expenses (CompExp) and computer maintenance (CompMntc) have a sequence code of 320. If you wanted to group the above expenditures together, you would need assign your own departmental sequence code. SupComp (110), CompExp (111), and CompMntc (112) might be an example. This would allow you to view these expenditures grouped together. The downside in this example is that you would not be able to view SupComp with the rest of your supplies type categories.

15. Glossary terms: Restricted or not Cash at cost center level Life-to-date balance information

16. Available Funds Balance • Several activities will affect the available balances that are maintained by the system: • Transactions entered directly into the system by department users in an effort to closely estimate available funds. These are planned or expected entries, and do not have a permanent effect on fund balance, but are estimating tools. These must be reconciled or removed (automatically or manually) from the system as the actual transactions are posted to the accounts. • Those updates to the available funds file generated by the system as a result of a pending system generated transaction, such as a GJIM funds transfer, or a retroactive LABOR payroll distribution change. These must be reconciled out of the system, by the system, as the actual transactions are approved and posted to general ledger. When a transaction is approved and is posted, or is rejected, the shadow entry which previously affected available funds for the center will be eliminated or reconciled away. • Commitment (requisition) entries, supported by detail in the UPS system, which do not have a permanent effect on fund balance. • PO encumbrance entries, supported by detail in the UPS system, which have a permanent effect on fund balance, and salary encumbrance entries, supported by detail in the PSB system, which do not have a permanent effect on fund balance, i.e., those encumbrances do not carry over into future fiscal years. • Expense transactions created via an invoice approving function in the UPS system. • Revenue or expense transactions that are created by other modules, such as LABOR, internal orders, payroll, cash receipting, and GJIM. • Transactions and updates which do permanently affect fund balance comprise the official record of the institution; transactions and updates which do not permanently affect fund balance are provided to supplement the official record for management purposes.