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| FBM091 Report of Transactions (General Ledger) | Use account controls 1xxx (Assets), 2xxx (Liabilities) and 3xxx (Fund Balance) to verify that the Accounting Equation is in balance. You will also find details on Fund Additions (4xxx) and Fund Deductions (5xxx) and can review subsidiary ledger summaries (9xxx). | |
| FBM090 Account Statement (Subsidiary Ledger) | Summarizes by object code an account's budget, actual revenues and expenses and encumbrances. Some accounts (mainly auxiliary) will have revenues and expenses. A positive number means that revenues exceeded expenses. If the number is negative, expenses exceeded revenues. Notice that I used positive and negative and not debit and credit. Debits and credits do not apply when reading this report. | |
| FBM091 Report of Transactions (Subsidiary Ledger) | Details budget, revenue, expense and encumbrance transactions for the current month. |
We also need to review how debits and credits affect the Fund Balance components. Remember that:
Ending Fund Balance = Beginning Fund Balance + Revenues + Fund Additions - Expenses - Fund Deductions.
Below is a chart indicating the normal balance or how each component of fund balance is increased:
| Fund Balance | ||
| Normal Balance Increased by | (Subsidiary Ledger) | (General Ledger) |
| Debits (DR) | Expenses | Fund Deductions |
| Credits (CR) | Revenues | Beginning Fund Balance Fund Additions |
Notice that the normal balance for Revenue and Fund Additions which increase Fund Balance is credit and Expenses and Fund Deductions which decrease Fund Balance is debit. Why is this significant?
Because, Fund Balance is increased with credits and decreased with debitsThe following chart indicates the normal balance or how each part of the equation is increased.
| Normal Balance Increased by | Accounting Equation (General Ledger) | ||
| Debits (DR) | Assets | ||
| Credits (CR) | Liabilities Fund Balance |
Now that we know what the normal balances are, let's take another look at the accounting equation.
- Assets - Liabilities = Fund Balance
restated, placing debits on side and credits on the other :
- Assets (DR) = Liabilities (CR) + Fund Balance (CR)
NOTE: Debits (DR) = Credits (CR)
The second equation that comes into play when talking about accounting is:
Debits (DR) = Credits (CR)
To better understand the monthly FRS reports, you will need to know what the normal balance is or how a part of the accounting equation is increased. Knowing the normal balances will also help you to identify possible problems in your accounts.
NOTE: Debit transactions and debit balances are normally shown without a symbol and credit balances are shown with a "-" symbol. "-" does not mean negative, it means credit. For example, Cash with a debit balance of $1,000, would be shown as $1,000. Cash with a credit balance of $1,000 would be shown as $1,000-.
Accounting Concepts [The Accounting Equation-Fund Balance (Net Worth)]
Posted by Saleem Mukati| Assets Cash Accounts Receivable Inventory | LESS | Liabilities Accounts Payable Deferred Revenue | EQUALS | Fund Balance Beginning Fund Balance Revenues Expenses Fund Additions Fund Deductions |
| Fund Balance | Also known as Net Worth, Retained Earnings or Net Assets, is the difference between what you own (Assets) and what you owe (Liabilities). In other words, if you took everything that you own and turned it to cash and paid off all your debts (liabilities) whatever you had leftover would be your net worth, fund balance or net assets. Fund Balance at the University is increased and decreased by Revenues, Expenses, Fund Additions and Fund Deductions. Revenues and Fund Additions increase Fund Balance. Expenses and Fund Deductions decrease Fund Balance. Intuitively this should make sense. If you make or get money (increase revenue or fund additions), you are worth more. If you spend or lose money (increase expenses or fund deductions), you are worth less.
| ||||||||||||||||||||
| Revenues | Money earned for goods or services provided. And at the University unearned money, such as, unrestricted gifts, are also recorded as revenue. | ||||||||||||||||||||
| Expenses | Money spent for things that benefit or help the university operate, for example, salaries, wages, E.R.E., operational supplies, travel, capital and student support. | ||||||||||||||||||||
| Fund Additions | Money received by the University that is not earned, for example, grants and contract money and restricted gifts. | ||||||||||||||||||||
| Fund Deductions | Money paid by the University that is not considered an expense. For example, excess grant money or deposits held for another entity |
| Assets Cash Accounts Receivable Inventory | LESS | Liabilities Accounts Payable Deferred Revenue | EQUALS | Fund Balance Beginning Fund Balance Revenues Expenses Fund Additions Fund Deductions |
| Liabilities | Money or services owed to someone who has provided the University a good or service. Examples of liabilities at the University are Accounts Payable and Deferred Revenue. | |
| Accounts Payable | Money owed to someone who has provided the University with a good or service. Example: Your department buys a computer from Gateway. Gateway will ship the computer to your department and send an invoice to Accounts Payable (the department in FSO who processes invoices and cuts checks). An invoice is a request for payment, i.e. a liability, an Accounts Payable. | |
| Deferred Revenue | Services owed for monies received. Example: Someone gives you $1,000 to dig a ditch, you agree and take the money. You now owe that person a ditch, i.e., you haven't earned the $1,000. Revenue that hasn't been earned yet is called Deferred Revenue and because you owe someone something, in this case, a ditch, deferred revenue is a liability. When you dig the ditch, you will have earned the revenue and can record the $1,000 as revenue. |
| Assets Cash Accounts Receivable Inventory | LESS | Liabilities Accounts Payable Deferred Revenue | EQUALS | Fund Balance Beginning Fund Balance Revenues Expenses Fund Additions Fund Deductions |
| Assets | Items owned by the University, such as, cash, accounts receivables, inventory, equipment, stocks, bonds, etc. | |
| Accounts Receivable | Money owed to the University for goods or services that have been provided by the University. Example: The Student Union caters an event before payment is received. The money owed to the Student Union is an Accounts Receivable. | |
| Inventory | Equipment owned by the University or goods available for resale. Example 1:You purchase a computer for your department. The computer is capitalized (coded with a capital object code) and becomes part of the University's inventory. Example 2:The Bookstore buys books to sell. The books are inventory purchased for resale. |
The following equation is the cornerstone of accounting.
In the next couple of slides we'll define each part of this equation.
Assets - Liabilities = Fund Balance
OR
Assets = Liabilities + Fund Balance