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Year-end Accruals

An accrual, or accrued expense, is a means of recording an expense that was incurred in one accounting period but not paid until a future accounting period. Accruals differ from standard Accounts Payable Transactions in that an invoice is usually not received and entered into Oracle before year end (June 30). Recording an accrual ensures that the transaction is recognized, per US GAAP, in the accounting period when it was incurred, rather than when it was paid.

For an expense to be recorded in the fiscal year, the expense should have been incurred, meaning that the goods should have been received or the services should have been rendered, by end of day June 30. As we navigate the analysis of invoices dated in July for prior service periods, we may need to reach out to you for help confirming the date that goods or services were received in relation to July unpaid invoices. Your guidance will help DFA accurately account for transactions in the proper fiscal year.

Please note that there is a tight turn-around time on these requests as we must reconcile the accruals, post to the Oracle system, and submit to UCOP by required systemwide due dates. All invoices that have a July date that cannot be confirmed by our department partners will be posted into the new fiscal year.

When recording an accrual, the debit of the journal entry is posted to an expense account, and the credit is posted to an accrued expense liability account, which appears on the balance sheet. When the University pays for the expense, an entry to reduce the accrued expense liability and to reduce cash is recorded by posting a debit to the accrued expense liability account and a credit to the cash account.

Examples of when an accrual is necessary:

  • Scenario 1: A purchase order is placed on June 1 for lab equipment, and the equipment is received on June 28. An invoice for $3,000 is received on July 1 and is paid on July 30. An accrued expense of $3,000 must be recorded as of June 30 to ensure that the expense is properly accounted for in the current fiscal year. The way to accrue this expense is to record the receiving of the goods in Oracle.
  • Scenario 2: An electric bill is received on July 15 in the amount of $6,000. The dates of electric service are from June 10 – July 10. An accrual would be necessary as of June 30 for $4,000, as two-thirds of the time of service occurred in June and one-third occurred in July.

Standard Accruals

Purchase Order Accruals

These accruals are recorded automatically by DFA based on receipts entered against purchase orders by the University departments. If goods are entered as received, but they have not been paid yet, the system will record the expense as an accrued expense. The expense associated with the invoice is booked when Accounts Payable enters the invoice, not when the invoice payment is sent to the supplier. Accruals will only be recorded for expenses greater than $500. Goods and services received by June 30 must be entered by 5 p.m. June 30.

Non-standard Accruals

Controller's Office Accruals

There are also other types of large accruals made during this process. Controller's Office accruals are recorded by the Controller’s office during the year-end financial statement process. These accruals are generally calculated by reviewing significant payments made after year end and determining if the related expenses occurred in the current fiscal year or the next fiscal year. For these accruals, departments and projects are not charged; rather these are charged to a special Controller’s office department. These accruals are generally determined after the general ledger is deemed final for financial statement reporting.

Reversal of Accruals

In the next fiscal year, the accruals for the prior fiscal year need to be reversed from the balance sheet so that expenses are not double counted when paid in the next fiscal year. Accruals are automatically reversed on the first day of the new fiscal year. Reversals of accruals are done automatically in Oracle when the option is selected to automatically reverse the entry in the next accounting period (doing so assigns the same journal class number to the reversing entry as the original entry).