2.01, Structure of Accounting System

2.01 Structure of the Accounting System

last updated: 06/29/2004

The Financial Records System (FRS) is the official accounting system used at the University of Arizona. The accounting system is a tool for accumulating the financial activity at the University. The primary responsibility for the information maintained in the system resides with the Financial Services Office.
Accounts
The University receives funding from various sources, most of which is specified for certain types of expenditures. To enable the administrators of these funds to monitor and report on the activity of the funds, the accounting system must maintain separate records of each source of funds, and the expenditures from each source. This is accomplished by establishing separate accounts in the system, much as a bank establishes separate accounts for each depositor. An account is defined as a functional unit established for a specific purpose, with one individual having primary responsibility for its activity.

Three types of accounts are maintained in FRS: general ledger accounts, subsidiary ledger accounts and roll-up accounts. The general ledger (GL) accounts accumulate asset, liability, fund balance, fund addition and fund deduction records, also known as balance sheet records. The subsidiary ledger (SL) accounts accumulate budget, encumbrance, revenue and expenditure records. The roll-up accounts do not accumulate actual dollar records, but are used to provide summary reporting for a series of SL accounts.
The Financial Services Office is responsible for establishing accounts. This responsibility may be delegated. The accounts in FRS are six-digit numbers that are assigned by the Financial Services Office. The numbers have been assigned in blocks, so similar types of accounts will all be in the same range of numbers. For example, state subsidiary ledger accounts are in the range 1-00000 through 1-49999.
Six-digit accounts are combined with four-digit subcodes when dollar information is recorded in the system. This combination of account and subcode is referred to as a ten-digit account.

Attributes
As each account is established, a series of attributes for the account is recorded. Attributes are non dollar, descriptive data about the account. They include a short account name (twenty characters) and a long description (eighty characters); the name of the person responsible for the account; the department, executive level, division and school to which the account belongs organizationally; the persons that may be authorized to sign certain source documents for the account; and several other pieces of information. These attributes are used to identify account information for reporting purposes.

Subcodes
To maintain detailed records of the dollar activity within an account, a series of subcodes are used. Subcodes are four-digit numbers that represent detail activity within an account. The subcodes used with GL accounts are referred to as account controls. The subcodes used with SL accounts are referred to as object codes. Detailed listings and definitions of these subcodes are provided in Section 3, Account Controls; Section 4, Revenue Object Codes; and Section 5, Expenditure Object Codes.

Posting Transactions
Once an account has been established in the system, transactions originated on various source documents may be posted to the account. A three-digit transaction code is assigned to each transaction. The transaction code identifies the type of transaction and tells the computer system how to process that transaction. Following is a brief summary of the different types of transactions that may be posted to an account.
1. Budgets (transaction codes 020 through 029): Posted to SL accounts only, these transactions are used to enter original budgets to accounts and to process budget revisions or transfers.
2. Receipts (transaction codes 030 through 039): Used to post cash receipts to GL or SL accounts.
3. Disbursements (transaction codes 040 through 049): Used to post cash disbursements from GL or SL accounts.
4. Encumbrances (transaction codes 050 through 059): Posted to SL accounts only, these transactions are used to temporarily reserve funds for anticipated future expenditures. These transactions are canceled, in part or completely, when the actual expenditures takes place.
5. Journal Entries (transaction codes 060 through 069):Used to post journal entries to GL or SL accounts. These entries transfer dollars from one ten digit account to another ten digit account.
6. Bank Transfers (transaction code 090):Used to transfer funds from one bank account to another. This transaction is only used for the GL bank accounts maintained by the Financial Services Office.
7. Beginning Balances (transaction code 098):Used to post the beginning balance of a ten digit GL or SL account. This transaction is primarily used when account balances from the previous accounting system are established in the new system.
In addition to the transaction code, the originator of a transaction must also provide the date of the transaction and the account number and the detail subcode to which the transaction is to be posted. An optional description field may be used to provide a brief description of the transaction, and two optional reference fields are available for use to identify source documents that may have initiated the transaction.
Transactions may be posted directly into the system (on-line) or may be posted to a subsystem and subsequently fed to the mainframe in a "batch" feed. The system may only be updated by authorized data entry units.
1. Following are the types of transactions processed directly in FRS:
  1. Accounts: Created, modified, closed.
  2. Budgets: Loaded, revised, transferred.
  3. Journal entries.
  4. Non student cash receipts.
  5. Purchasing: Purchase Requisition, Purchase Order and Prepaid Purchase Order encumbrances, encumbrance revisions and cancellations.
  6. Travel: Travel advance encumbrances, encumbrance revisions and travel expenses.
2. Following are the subsystems and transactions that feed to FRS.
  1. SPINS (Sponsored Projects Information System): Sponsored project accounts created, modified, closed; Sponsored project account budget loads, revisions.
  2. PSOS (Personal Services Operating System): Personal service encumbrances; Personal service encumbrance revisions; State account budget loads and revisions; Biweekly payroll expense; payroll adjustments.
  3. SIS (Student Information System): Student receipts, financial aid, scholarships and refunds.
  4. Cash Management: Prepaid Purchase Order expenditures, encumbrance liquidations, and canceled checks.
  5. Purchasing Card: Credit card purchases and refunds.
  6. Interdepartmental transactions can be processed on-line or through subsystem feeds.
Debits and Credits

FRS is a double-entry accounting system. This type of accounting requires that every entry is entered as a debit to one ten-digit account (six-digit account plus four-digit subcode) and a credit to another ten-digit account, so that the total of the debits and credits is always equal. Each type of subcode has a "normal" balance of either debit or credit.

Account type

Subcodes where Normal Balance is Debit

Subcodes where Normal Balance is Credit

Subsidiary Ledger

Expenditures

Revenues

General Ledger

Assets
Fund Deductions

Liabilities
Fund Additions
Fund Balance

Much of the transaction posting in FRS is processed automatically, based on the transaction code. For example, when a cash receipt is posted as a revenue, double entry bookkeeping requires that the subsidiary ledger account/revenue object code be credited and the related general ledger/cash account control be debited. However, the operator only enters the credit side of the transaction. The system determines the cash balance to be debited and updates it automatically.

Reporting
The transactions posted to an account are accumulated in the system. At the end of each month, the series of transactions posted to the account are printed on a monthly report, the FBM091, Report of Transactions. A summary statement, the FBM090, Account Statement is provided for each SL account. These reports are distributed to the responsible person for the account. Several other standard and specially designed reports are distributed as appropriate. The standard reports are described in detail in Section 16, Reports & Reconciliation.
The responsible person for the account is required to reconcile each account each month. Account reconciliation is the process of comparing the transactions initiated for the account to the transactions that actually printed on the report. This process verifies the balance of the account and identifies errors that must be resolved.

Account Classification
To comply with accounting and reporting requirements, accounts are classified into funds. These funds are described in the following paragraphs.
Current Operating Funds: Current operating funds are resources currently expendable by the University in direct support of its primary objectives. The current operating funds may be either unrestricted or restricted. Resources available for all purposes of the University, at the discretion of the Board of Regents, are classified as unrestricted current operating funds. This group is further classified as state, designated and auxiliary funds.
Resources that are restricted for a specific purpose by persons or organizations outside the University are classified as restricted current operating funds. This group is further classified as sponsored project grants and contracts and other restricted funds.
1. State Funds: Unrestricted current operating funds not classified as designated or auxiliary funds. These funds primarily consist of tuition and fee revenue and State appropriations for main campus, College of Medicine, agricultural, and UA South operations. State funds are used to support the academic programs and the general operating expenses of the University.
  A State appropriation may specify the general purpose or purposes for which the appropriation may be used, and, if the Board of Regents can effect a change in the intended use of the funds, without having to go through a legislative process, then the funds are general operating funds. The Board of Regents may delegate authority to make changes in the intended use of these funds to administrative units within the University.
2. Designated Funds: Current operating funds that have been limited for a specific purpose by specific action of the Board of Regents or by an administrative unit of the University authorized by the Board to designate funds.
  The designated funds account for the activities of indirect cost and administrative service charge recoveries; conferences; certain instructional activities, such as the summer session, continuing education, international, and extension programs which have been designated for a specific purpose. Also included are funds received from the sale of products or services that are not more appropriately classified as auxiliary enterprises according to the definition below. For example, sales of by-products of instructional, research, or public service activities, such as the sale of produce by the College of Agriculture, or the sale of hearing aids by the Speech and Hearing Science Department, are accounted for as designated funds.
3. Auxiliary Enterprise Funds: Auxiliary enterprise funds are those current operating funds, which generate revenue from an established auxiliary enterprise. An auxiliary enterprise is a separately organized University unit or activity established to sell products or services on a continuing basis and is managed essentially as a self-supporting business. The auxiliary enterprises generally support the instructional, research, or public service activities of the University. An auxiliary enterprise charges fees directly related to, although not necessarily equal to, the cost of the products or services. Sales of by-products of instructional, research, or public service activities are not classified as auxiliary enterprises. See definition of designated funds. Examples of auxiliary enterprises include Residence Life, Intercollegiate Athletics, and Stores.
4. Sponsored Project Grant and Contract Funds: Funds received from Federal, State or other governmental agencies or private organizations that are provided on a contractual or grant basis with the restriction that the funds be used for a specific purpose. These funds may only be used for the intended purpose and must be spent in accordance with terms specified in an agreement established between the sponsor and the University. If not, the funds may revert to the sponsor.
5. Other Restricted Funds: Current operating funds received from outside sources with specific restrictions on how the monies are to be spent that are not more appropriately classified as sponsored projects. Included are restricted gifts, governmental grants for student aid, and private grants and scholarships.
Non-operating Funds: Non-operating funds are classified as loan, endowment, plant and agency funds.
1. Loan Funds:Resources available to the University for loans to students in the financing of their education and the balance of existing loans outstanding. Loan funds may originate from restricted sources, such as gifts, endowment income restricted to loans, and refundable grants matched with institutional funds. The Board of Regents or authorized University administrators may designate or transfer unrestricted funds to loan funds. Funds for loans may be specified for use in the National Direct Student Loan/Perkins program, temporary and long-term loan programs, or the health-related professions loan programs.
2. Endowment Funds: Simply stated, an endowment is a special fund whereby the principal is held for investment and the interest earned on the principal is spent as directed by the donor. For more detail on endowments, see Section 8.13, Endowment and Investment Policies.
3. Plant Funds: The unexpended plant funds, renewal and replacement funds, debt service funds, and the investment in plant funds together are called Plant Funds.
  1. Unexpended Plant Funds: Unexpended plant funds are resources and any associated indebtedness to be used for the acquisition of physical properties for institutional purposes, which have not yet been expended. Indebtedness incurred to finance plant acquisition, construction, and the like, are included as a liability of the unexpended plant funds, until the proceeds of the indebtedness are expended. Examples of restricted unexpended plant funds include proceeds from the issuance of long-term debt and gifts. Unrestricted unexpended plant funds include State capital or building renewal appropriations, as well as, funds set aside by the University from unrestricted fund balances.
  2. Renewal and Replacement Funds: Resources accumulated for renewal and replacement of the capital facilities of the University.
  3. Debt Service Funds: Accumulates resources for the payment of debt service charges and the retirement of long-term indebtedness. Examples of debt service funds include those for bonded indebtedness, Certificates of Participation, lease purchase agreements, and other forms of long-term indebtedness.
  4. Investment in Plant Funds: Records the net capital acquisitions of the University. Capital assets are classified as land, buildings and improvements, infrastructure, equipment, library acquisitions, and construction in progress. The principal balance of liabilities incurred to acquire capital assets is recorded in this fund.
4. Agency Funds: Agency funds are resources held by the University in a fiduciary capacity for organizations or entities not directly affiliated with the University, such as University Physicians, Inc.
Account Structure

The structure of the general ledger (GL) and subsidiary ledger (SL) accounts are illustrated below:

General Ledger Account Structure: The ten-digit General Ledger account structure (six-digit account number, plus the four-digit account control) is characterized as follows: L - FFIII - VVVV

FF: These two digits are referred to as "Fund Group ID." These digits indicate to which fund an account relates, i.e. State fund, Auxiliary fund, Designated fund, etc.

Subsidiary Ledger Account Structure: The ten-digit Subsidiary Ledger account structure (six-digit account number, plus the four-digit object code) is characterized as follows: L - LIIII - VVVV.

L - L:

Subcodes:

VVVV: When appended to a GL account, the four-digit subcode is referred to as an "Account Control" and represents a specific line item for the account. When appended to an SL account, the four-digit subcode is referred to as an "Object Code" and represents a specific line item for the account. The account control and object code assignments are as follows:

General Ledger	Subsidiary Ledger
Assignment	Account Control	Assignment	Object Code
Assets	1100 - 1999	Revenues	0010 - 0960
Liabilities	2000 - 2999	Personal Svcs	1000 - 1999
Fund Balance	3000 - 3999	Employee Rel Exp	2000 - 2999
Fund Additions	4000 - 4999	Operations	3000 - 5999
Fund Deductions	5000 - 5999	Travel	6000 - 6999
Not used in GL	6000 - 8999	Capital	7000 - 7999
Summary Controls	9000 - 9999	Student Support	8000 - 8999
		Indirect Costs	9510
		Admin Svc Charges	9610
		Gift Admin Charge	9620
		Intradept Costs	9710

The Chart of Accounts provides additional detail related to the structure and ranges of FRS Accounts.

GL/SL Relationships

Each subsidiary ledger account is identified with a general ledger account through use of an attribute known as the map code. This map code establishes a relationship between the SL and GL account that is the basis for indirect updates that are generated automatically in FRS. For example, when revenues are posted in the subsidiary ledgers, FRS automatically increases the cash balance and the fund balance of the appropriate general ledger account. When expenditures are posted in the subsidiary ledgers, FRS automatically decreases the cash balance and fund balance of the appropriate general ledger account. The map code is the last five digits of the GL account. There are three possible types of GL/SL relationships.
1. One GL to One SL: In this relationship, the cash balance and fund balance in the GL account are updated by a single SL account. This relationship may be established for auxiliary, designated and sponsored projects accounts. The managers of these accounts often need to know how revenues and expenditures affect the financial position of the account. Although these accounts will generally be budgeted, they must also have a sufficient cash balance to cover an expenditure before that expenditure may be made. A one GL to one SL relationship usually exists if the last five digits of the GL account are the same as the first five digits of the SL account. Also, the GL and the SL accounts usually have the same account name.
2. One GL to Many SLs: The one GL to many SL relationship is generally established for accounts that receive budget authorization, but do not "own" balances. In other words, unexpended balances revert back to fund balance at fiscal year end and may be rebudgeted during the subsequent fiscal year as approved by the Arizona Board of Regents. In this relationship, several SL accounts update the same GL account. This structure is useful when the cash balance must be monitored at a higher level. This relationship is established for state-main campus and state-medical college accounts, as well as for some of the auxiliary, designated and other accounts. Expenditures may only be incurred if budget is available in the SL account.
3. One GL to No SL: The one GL to no SL relationship is established for accounts which do not record revenues and expenditures. These accounts, which are primarily handled within the Financial Services Office, include endowments and most loan accounts.

FRS Departmental Manual· FSO Homepage· UAInfo· 3 Account Controls

maintained by: Cindy Robison
last reviewed: 6/30/04