ACCRUAL PROCESS Updated 9/13/2010

Page 2 ACCRUALS â Definition: Expense Accrual: – A month-end journal entry (either system generated or manual) that accounts for goods or services that were received in a given month but the invoice was not posted by month end – Purpose: To allow monthly expense reports to accurately report actual medical center expenses in the event there are invoicing inconsistencies or delays. Revenue Accrual: – Establishment of a collectible receivable – A month end manual journal entry to report revenue that was generated in a given month when the corresponding cash payment was not received by month end. – Purpose: To allow monthly revenue reports to accurately report actual medical center revenue in the event there are delays in receipt or posting of cash.

Page 3 What Causes an Expense Accrual? â Two triggers for expense accruals: A good or service is purchased and received, but invoice has not been processed/matched to purchase order in the system by month end A good or service is invoiced infrequently or inconsistently, and needs to be expensed over multiple periods of a fiscal year

Page 4 Accrual TypeEntered in Dept GLReversed from Dept GL Peoplesoft (Purchasing) Generated â Automatically generated when goods/services that were ordered via a purchase order are received in Peoplesoft â For items covered in “E-entry”, manual intervention by accounting may be necessary to override automatic accrual â Reversed in subsequent month Expense Accruals

Page 5 Accrual TypeEntered in Dept GLReversed from Dept GL E-Entry (Pre-set monthly accruals done in Accounting) â Designed for consistent or predictable goods/services that will be paid infrequently or invoiced inconsistently (I.e. annual service agreement) and needs to be expensed across multiple periods â New e-entry items to be created at manager request (either during budget process or ad hoc) â Accounting may help managers identify appropriate e-entry items, but will only create with manager approval â Communications and set-up of E-entry will occur prior to start of the upcoming fiscal year â E-entry items to continue regardless of dollar amount if department manager approves â E-entries will automatically occur during the fiscal year without additional approval required unless Accounting notified of an operational change. â Accounting will manually accrue and/or reverse accruals each month based upon criteria agreed upon with manager. Expense Accruals

Page 6 Accrual TypeEntered in Dept GLReversed from Dept GL Journal Entry (Ad hoc accruals done manually in accounting) Manually generated in Accounting in response to: â Departmental Manager request â Accounting may contact department manager to determine if ad hoc accrual necessary in any month when monthly and YTD variance is significant. â All outstanding expenses greater than $1,000 will be accrued to allow allocation to correct fiscal period. Journal entries automatically reverses the following month unless department manager requests otherwise. Expense Accruals

Page 7 Assumptions â Accounting will continue to review automatic Peoplesoft accruals to implement E-entry accruals and reversals. â Current year E-entry accruals are reconfirmed by Accounting staff prior to the new fiscal year to determine if any adjustments need to be made. â Accrual policies and definitions will be distributed and reviewed during budget process.

Page 8 What Causes a Revenue Accrual? â Revenue Accruals are rare and only done when confirmed revenue could not be posted to the general ledger at month close. â Triggers: Other operating revenue that is confirmed could not be posted to the general ledger (I.e. HMFP monthly parking payment not received prior to month close); typically entered at departmental request Standard revenue accruals for long-term revenue sources (I.e. Rental Income, Resident income, other affiliation agreements) Accounting may contact department to determine if other operating revenue accrual required if significant variance observed.

Page 9 Contact â For further information or questions, please contact: Sue Gammons Accounting Manager Or Eileen Simons Assistant Controller, Fiscal Services7-0364