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Federal Accounting Corner

Debit and Credit Activity

What Goes In and What Goes Out
Last month, I wrote about reporting balances as positive or negative versus debit and credit.This month, I'm going to discuss how the balances are put together, and what effect this has had on the Standard General Ledger (SGL).

Four or Two?
The numbers that we use have signs, and they are either positive or negative. The postings to accounts are either debits are credits. Does that mean there are only two possible postings (positive = debit, negative = credit), or do all four possibilities exist (positive debit, negative debit, positive credit, and negative credit)? If there are four, how does one determine which activity is considered debit and which activity is considered credit?

Transfer Example
For example, SGL account 4170 Transfers—Current-Year Authority is debited when funds are transferred in and credited when funds are transferred out. The two-value approach only recognized those two possibilities. However, the four-value approach says that a reduction to transfers in is not the same as an increase to transfers out. Hence, a negative debit is not the same as a positive credit. Does this distinction really matter? I've seen occasions where auditors want to separate debit and credit activity, and so want activities that normally debit to include credits when they are backed out or posted for a negative value. For account 4170, if a credit was posted to back out an erroneous debit (i.e., one not supported by a SF-1151 non-expenditure transfer document), it makes sense to link the two transactions somehow, so that if accountants reconcile the debit activity of that account with Treasury's records of transfers in, they see this activity as an error and a backout, rather than as an error which has to be netted against a similar error in the transfers out. On the other hand, perhaps the reconciliation should only be done for both transfers in and out simultaneously, so as to make the debit/credit distinction unimportant.

In cases where this distinction really does matter, the SGL Board has set up multiple GL accounts to capture the activity separately. The SGL Board added accounts 3102 Unexpended Appropriations—Transfers-In and 3103 Unexpended Appropriations—Transfers-Out to separate these activities so account 4170 does not have to. In a similar vein, upward and downward spending adjustments are in separate accounts, and rescissions credit a different account from the one the original appropriation debited.

I've also seen cases where agencies have added subaccounts because the SGL had not set up multiple accounts to segregate activity the agency needed to report or track separately. For example, one agency split SGL account 4310 Anticipated Recoveries of Prior-Year Obligations into subaccounts 4311 Anticipation of Recoveries and 4312 Recoveries Realized. At the time, account 4310 debit activity is reported on a separate line from the credit entries on the Statement of Budgetary Resources, but since then, account 4871 was added to handle this split (though credit balances in 4310 are currently reported on a different line from debit balances). 

One of the few areas where the statements make a distinction not easily found in the SGL is to segregate purchases of assets funded by authority (debit to the asset account) from disposals of assets (credit to the asset account). Of course, an unfunded transfer in of an asset (which is a debit) or a purchase refund (which is a credit) would cause similar problems in calculating funded purchases, so simply separating debit and credit activity would not always be sufficient. The SGL added a whole new debit/credit pair of accounts in the 8800 series to record purchases rather than add new subaccounts to the asset or expenditure accounts.

Conclusion
If it is important to distinguish between the various types of activity in an account, then it is best to set up separate subaccounts for this. If it is not important, then analysis of a particular account should include all activity, both debit and credit. Debits and credits should simply be the means by which an account balance is increased or decreased, and not used as a signal for different types of activity. —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.