AGA Today

Federal Accounting Corner

Advances, Cash, and Budgetary Accounts

The U. S. Standard General Ledger (SGL) has several accounts that do double duty. Account 4802 Undelivered Orders - Obligations, Prepaid/Advanced is associated with both 1410 Advances and Prepayments and 1010 Fund Balance with Treasury. This trilateral relationship can get quite tricky. (In actuality, account 4832 is posted for transfers, 4872 for downward adjustments against old years and 4882 for upward adjustments of 4802; but for this column we're going to include those accounts under 4802.)

Straightforward Entry
When advances are paid for with cash, the posting is straightforward:

Issue advance [B308]:
Debit	1410		Credit	1010
	4801			4802

The credit balance of 4802 matches that of 1010 and also matches the debit balance of 1410, so all the formulae hold.

Payables
What do you do when an advance is issued by EFT? Obviously, 2120 Disbursements in Transit must be credited instead of 1010 Fund Balance with Treasury, but what budgetary accounts are posted?  If we wait until the disbursement to post 4802, then our cash balances will agree between budgetary and proprietary, but until the confirmation is posted, the advance balances will disagree. If we post 4802 immediately, then cash won't agree until the confirmation.  One way around this is to include the requirement that 2120 balances be supported by 4901 Delivered Orders - Obligations, Unpaid.  This leads to the following convoluted entry:

Issue advance [B308 minus B110]:					Confirm payment [B110]:
Debit	1410	Credit	2120		Debit	2120	Credit	1010
	4801		4802			4901		4902
	4902		4901

Auditors may also wonder why we are posting to delivered orders (albeit, for a net of zero) when no orders have been delivered. This same problem exists for all other payments that use a SGL account other than 4902. My personal preference is to split out the 2120 payable account using subaccounts, for example:

2120.1 Disbursements in Transit - Delivered Orders, disbursed with an entry to 4902

2120.2 Disbursements in Transit - Undelivered Orders, disbursed with an entry to 4802

2120.3 Disbursements in Transit - Reimbursement Advances Returned, disbursed with an entry to 4222

2120.4 Disbursements in Transit - Reimbursements Earned Refunded, disbursed with an entry to 4252 and so on, as needed.  In our example above, the new entry would be the much simpler:

Issue advance:					Confirm payment:
Debit	1410	Credit	2110.2		Debit	2110.2	Credit	1010
						4801		4802

The regular cash equation still works (1010 = 4119 + 4201 + 4802, etc.) and the balance of 4802 should always equal the sum of 1410 and 2110.2. Note, however, that this requires reporting the balance of 2110.2 as SGL 1410 in external reports.

Adjustments
This issue is of greater concern when balances are converted from one system to another or are adjusted. Take, for example, the following entry from the SGL Transactions listing:

D130   To record a downward adjustment to prior-year prepaid/advanced undelivered orders with no refund collected. 

Proprietary Entry

Debit  1310 Accounts Receivable

Credit  1410 Advances to Others

An agency could also reclassify advances as receivables or vice-versa as part of an overhaul of procedures or accounting practices. It would be tempting to record the simple entry above, since no cash or budgetary accounts are directly involved. However, that would violate the principle that 4802 is supported by the 1410 balance. The proper entry to make when reclassifying an advance as a non-reimbursement receivable is to record SGL transactions B134 (if appropriated funds are affected), C212 and C414, thereby expending and expensing the advance and then issuing a bill. Depending on how flexible your accounting system is, this may require the processing of up to three documents. The combined entry would be:

Budgetary Entry

Debit   4802 Undelivered Orders – Obligations, Prepaid/Advanced

Credit  4902 Delivered Orders - Obligations, Paid
 

Proprietary Entry

Debit   1310 Accounts Receivable

           6100 Operating Expenses/Program Costs

           3107 Unexpended Appropriations - Used

Credit  1410 Advances and Prepayments

           6790 Other Expenses Not Requiring Budgetary Resources

           5700 Expended Appropriations

On the budget side, there would be a reduction in undelivered orders (unliquidated obligations) and an increase in delivered orders (expenditures). Funded expenses would also increase, offset by unfunded expenses. Only then can the advance become a receivable. (See my September, 2004 column for a similar discussion concerning the writing off of advances.)

Some agencies take a more expedient approach, and create a special account such as 1310.2 for receivable advances. They treat these as advances in that they still support the 4802 balance, and when the receivable is collected, account 4802 is debited instead of 4902. In that case, they could make a simple debit 1310.2 credit 1410 entry for the reclassification, but they would have to report 1310.2 as SGL 1410 to make the 4802 formula work.

Conclusion
Extra care must be used when developing posting models involving dual-use accounts.  Budgetary advance accounts must tie to both cash (Fund Balance with Treasury) and to proprietary advances/prepayments. — 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