AGA Today
Federal Accounting Corner
Positive and
Negative Versus Debit and Credit
Preparing the
Form and Content reports can be confusing: if a report line is composed
of the balance of several accounts, is the report line shown as a
positive number if these accounts have normal balances, or only if the
balance is a debit? If the sign is based on the normal balance of an
account, then what about lines that are mapped to multiple accounts,
some with normal debit balances and some with normal credit balances?
Mathematics
Versus Human Speech
In the history of
humanity, it wasn't that long ago that most calculations were written
out in words, rather than in tables of numerals. Today, we use numerals
readily, because "2 + 7 - 4 = 5" is much easier to read than "add two to
seven, less four, leaves five." The decimal system of money also
assisted in calculations, so we can represent an amount as a single
number rather than a string of them, for example, $75.34 (seventy-five
dollars and three-four hundredths) versus £2-5s-3d (two lira, five
solidi, three denarii = 2.2625 lira). We accountants have a similar
problem with debits and credits. If payables has a credit balance of
$200, do we say it has a positive $200 balance, since payables are
supposed to have a credit balance, or do we say it has a balance of
$-200, knowing that payables are supposed to be negative (credit)? Back
when Paccioli introduced double-entry bookkeeping to the church, most
calculations were still done laboriously, so the additional effort to
deal with debit and credit balances was insignificant. Today, with most
calculations being made on computerized databases and spreadsheets, that
is not the case.
Examples
Suppose we want
to assess the creditworthiness of an entity. One test is to calculate
the net payables/receivables. Using the "normalized" balances (this is
probably not a correct usage of the term, but I base it on the SGL
referring to accounts as having a "normal" debit or credit balance), we
look at an entity with five million debit balance in receivables and a
three million credit balance in payables, subtract them, and say there
is a net two million receivable balance. If we use a mathematic
approach, where debits are positive and credits are negative, we
actually add 5 and -3 to get a +2 million net balance. We don't have to
say "net receivable" or "net payable" because the sign of the 2
indicates it is a net debit/receivable.
While the
distinction in that example is trivial and more semantic than real, it
is not so when dealing with multiple accounts. For example, the
post-close balance of Standard General Ledger (SGL) account 3100
Unexpended Appropriations - Cumulative is equal to the sum of the
pre-closing balances of accounts 3100 through 3109. However, if we use
normalized balances, then we have to realize that accounts 3103
Unexpended Appropriations - Transfers-Out, 3107 Unexpended
Appropriations - Used, 3108 Unexpended Appropriations - Prior-Period
Adjustments Due to Corrections of Errors, and 3109 Unexpended
Appropriations - Prior-Period Adjustments Due to Changes in Accounting
Principles have normal debit balances, so we have to subtract their
balances, while adding the balances of the remaining accounts 3100,
3101, 3102 and 3106. At least the SGL Board got rid of the normal
balance of "either" on accounts for amortization of investment premium
or discount, adjustments, funding transfers and similar activity that
can go in either direction.
The question of
whether debits or normal balances are reported as positive has a major
impact on the interpretation of the instructions for the Form and
Content reports. In the Statement of Budgetary Resources (SBR), for
example, does the minus sign in the text of line 18B indicate that
receivables are normally reported with a negative balance (because in
sections 2 and 3, credit is positive and debit is negative), or does it
indicate that the positive normal balance of the receivables is to be
subtracted? Based on FMS's instructions, 18B should report debits as a
positive balance, but it should be subtracted when calculating line 18C
for next year's statements (line 18C is ending net obligations and line
12C is beginning). Under the current method, it is very easy to report
amounts with the wrong sign, which will cause errors when lines are
summarized into totals.
Conclusion
The balances on
the FACTS I and II adjusted trial balances are signed: positive is a
debit and negative is a credit, regardless of what the normal balance
for the account is. When Treasury generates the SF-133 Report on Budget
Execution (which is now almost identical to the SBR) from these
balances, they have to add or subtract these balances to get the value
for the line. It would be a lot simpler if the directions for the
statements gave the sign to be applied to the account, so preparers of
the financial statements would know which balances to add and which ones
to subtract when calculating the amount for each line. —by Simcha
Kuritzky, CGFM, CPA
This column is provided as part of a
free exchange of ideas in federal accounting, and is not reviewed
substantively before publication. Please send all comments, queries or
corrections to Simcha.Kuritzky@CGIFederal.com