FY 2017 Accrual and Deferral Process
Accrual and Deferral Process and Timeline
For the fiscal year 2016 close, the Comptroller's Office refined the methodology of handling the amortization of prepaid expense deferrals and the year-end accrual process. These changes stem from feedback from the University community solicited after the completion of the fiscal year 2015 close-out. The fiscal year 2017 close will utilize the same methodology as fiscal year 2016.
Beginning with the 2016 Fiscal Year-End close, Drexel University increased the threshold for determining if an item should be deferred as a prepaid expense from $5,000 to $25,000. The Academy of Natural Sciences continues to use a threshold of $5,000 for determining prepaid expense deferrals. To be considered for a prepaid deferral entry, the expense must exceed the appropriate threshold and the period in which the expense benefits must cross over a fiscal year. The amount of the prepaid expense deferral will be equal to the portion that benefits the future fiscal year. The prepaid amount will be credited to your current year budget, then charged to the subsequent fiscal year in July of that year. If an expenditure falls below the thresholds for the respective entities, it will be fully expensed when paid.
General Accounting will no longer amortize prepaid expenses monthly. Any existing deferrals following the old methodology have been completely reversed in FY 2016. The current practice defers the portion of the expense that relates to the future fiscal year in the month the invoice is paid and then reverses the prepaid expense in its entirety in Period 1 of the new fiscal year. This change in methodology will alleviate confusion surrounding the amortization of prepaid expenses and its impact on your budgets.
Example: Department A at Drexel University has a journal subscription for $30,000 that starts on January 1, 2017, and expires on December 31, 2017. In this scenario, Accounts Payable will pay the invoice when received and charge the entire amount to the FOAPAL/fund identified on the purchase order or check request. They will inform General Accounting that the invoice is over $25,000 and crosses fiscal years via a Smart Source comment. General Accounting will then create a journal entry in FY 2017 to defer as a prepaid expense the $15,000 relating to the July 1 - December 31, 2017 period. This will result in the FOAPAL/fund initially charged for the subscription having a net expense of $15,000 in FY 2017. During year-end close, General Accounting will reverse the full amount of the deferred expense in Period 1 of FY 2018. This will charge/debit your FY 2018 budget for the subscription expense of $15,000 relating to that period. General Accounting will notify the department who requisitioned the item in Smart Source of the amount being deferred using a comment in that system.
Drexel University and the Academy of Natural Sciences must accrue all expenses for goods and services that were received on or before June 30 of each fiscal year. For the fiscal year 2017 close, we will follow the schedule listed below for all expenses. Consistent with the fiscal year 2016 close, when the entry for the accrual is processed by General Accounting, the reversal for the accrued amount will be automatically reversed in the current period of the new fiscal year.
After the year-end roll of encumbrances and balances on Friday, July 14, 2017, Accounts Payable will begin the accrual process for invoices relating to FY 2017. All invoices will be entered into the new fiscal year in the current period, with an invoice date of June 30 or prior. A query of these transactions will be provided to General Accounting no less than twice per week until Period 12 is closed. Departments should not submit accruals for transactions that have corresponding invoices being processed by Accounts Payable during the period of July 15 through August 18, 2017. If a department does not see an accrual for an item that they know they have received in FY 2017 on their FOAPAL/fund, please contact firstname.lastname@example.org ask to have a member of the General Accounting staff review the transactions. Please allow 3 business days for an accrual to be processed after it hits your account in the new fiscal year.
Department administrators should send to General Accounting any expense accruals for goods received or services provided during FY 2017 that they know they will be not be invoiced for prior to August 25, 2017. The posting of accruals by General Accounting for goods and services without invoices will be subject to the dollar thresholds outlined below. A journal entry should be submitted via the Journal Entry Workflow for the FY 2017 accrual using a June 30, 2017, date. A corresponding reversing entry should also be submitted using the current date. Submitting separate entries for the accrual and its corresponding reversal will ensure that your accrual is properly reversed.
Salary transactions for FY 2017 need to be processed by the deadlines in the FY 2017 Year-End Closing Schedule. Payroll transactions for wages earned during FY 2017 will be accrued by General Accounting based on information from the Payroll department on a bi-weekly basis through August 25, 2017.
During the dates below, any non-salary expenses related to FY 2017 will be accrued according to the thresholds specified below:
July 3-14, 2017
Accrue all FY 2017 expenses. Procurement Services will enter invoices, travel and business reimbursements into FY 2017 with a June 30, 2017, invoice and processing date.
July 17-August 4, 2017
Procurement Services will enter invoices and travel and business expense reimbursements in current period of new fiscal year with an invoice date of June 30, 2017, or prior. General Accounting will accrue all invoices, travel and business reimbursements related to FY 2017 for Drexel and the Academy of Natural Sciences.
August 7-11, 2017
Procurement Services will enter invoices and travel and business expense reimbursements in current period of new fiscal year with an invoice date of June 30, 2017, or prior. General Accounting will only accrue invoices, travel and business reimbursement transactions related to FY 2017 in excess of $25,000 for Drexel and in excess of $5,000 for the Academy of Natural Sciences.
August 14-18, 2017
Procurement Services will enter invoices and travel and business expense reimbursements in current period of new fiscal year with an invoice date of June 30, 2017, or prior. General Accounting will only accrue invoices and travel and business expense reimbursement-related transactions related to FY 2017 in excess of $50,000 for Drexel and in excess of $25,000 for the Academy of Natural Sciences.
August 21-September 22, 2017
Procurement Services will enter invoices and travel and business expense reimbursements in current period of new fiscal year with an invoice date of June 30, 2017, or prior. Accrue only FY 2017 expenses in excess of $100,000 for Drexel and in excess of $50,000 with approval of the Associate Vice President and Comptroller.
I hope that you find that the current methodology for deferring prepaid expenses simplifies the accounting and budget monitoring for your operations. I value your feedback and encourage you to contact me with any questions or comments regarding the process that you may have. I can be reached by email at email@example.com or by phone at 215.571.4478.
Thank you for your continued support.