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Each year, the University is required to issue a report on its financial condition for use by a broad audience, including the federal government, the Massachusetts Attorney General’s Office, rating agencies, bondholders, donors, and alumni. This report includes a balance sheet and a change in net assets statement (the non-profit equivalent of a profit-and-loss statement). These financialstatements must be produced in compliance with “Generally Accepted Accounting Principles” (GAAP).

GAAP requires that the University include in its financial statements expenses that are incurred during the year, as well as income earned during the year. As such, there may be transactions that occur in the following fiscal year that must be reported in the current fiscal year. To accomplish this, weprocess “accruals” for payables that are outstanding at June 30th, “receivables” for income that is outstanding but earned, as well as entries for “deferred” revenue and “prepaid” expenses. To ensure accurate financial statements, we are required to record these adjustments for all “material” transactions. We have set the materiality threshold at $5,000; therefore, adjusting entries must be processedfor applicable transactions of $5,000 or more. In general, these entries are processed by a tub’s central financial office, although the central tub office often relies upon departmental administrators to provide information needed to complete these entries.

When you pay a bill, the expense is recorded in the General Ledger; when you receive a payment for a service or good, the income isrecorded in the General Ledger. At the end of each year, we need to make sure that expenses are recorded for all goods or services you have received during the year. We also need to make sure income is recorded for all goods or services you have provided during the year. To ensure expenses and income are recorded in the proper year, the following adjustments are required:

▪ For expenses:o An entry should be recorded when a good or service has been received in the current fiscal year but will not be paid for prior to year-end. This entry is called an accounts payable (A/P) accrual; it debits an expense for the related amount and credits accounts payable on our balance sheet.

o An entry should be recorded when a bill has been paid in the current fiscal year for a good orservice that will not be received until the next fiscal year. This entry records a prepaid expense; it debits a prepaid expense object code on the balance sheet and credits the expense object code from which the bill was paid.

▪ For income:

o An entry should be made when a department has not received income owed to it by year-end for goods or services provided by the departmentduring the current fiscal year. This entry is called an accounts receivable (A/R) accrual; it debits an accounts receivable object code on the balance sheet and credits the appropriate income object code.

o An entry should be recorded when revenue has been received in the current fiscal year but the department will not provide the good or service until the next fiscal year. This entryrecords deferred revenue (“unearned income” that should be included in income in the following year); it debits the income object code where the revenue has already been recorded and credits a deferred revenue object code on the balance sheet.

In short, these adjustments allow expenses to be reported when incurred, not paid, and income to be reported when it is earned, not received.

The followingare general rules regarding A/P (expense) accruals:

▪ Accounts payable accruals should be made for items where a good or service has been received in the current fiscal year but will not be paid for prior to year-end. This includes items for which an invoice has been received but not paid, as well as items for which an invoice has not yet been received. If an invoice has not been...