(REVISED 8/31/98 per TFM S2-98-02)

**PRESENTATION TO THE**

**STANDARD GENERAL LEDGER BOARD**

**SGL IMPACT**

**FASAB STANDARD #4**

**MANAGERIAL COST ACCOUNTING CONCEPTS AND STANDARDS**

**FOR THE FEDERAL GOVERNMENT**

**AUGUST 28, 1997**

***IRC COST SUBCOMMITTEE:***

Karen Metler (Financial Management Service)

Judy Yuran (Financial Management Service)

Christine Chang (Financial Management Service)

Karen Brown (Department of Agriculture - FCS)

Phil Daniels (Department of Interior)

Donna Dull (National Aeronautics and Space Administration)

Jack Hafner (National Aeronautics and Space Administration)

Greg James (Department of Labor)

Veronica Kitchen (Housing and Urban Development)

Vivian Lu (Department of Agriculture)

Richard Mayo (Federal Accounting Standards Advisory Board)

David Mielke (National Aeronautics and Space Administration)

Sue Mundstuk (Health and Human Services)

Eileen Parlow (Department of Education)

Jerry Ross (Customs)

Pat Smith (Department of Agriculture)

Damon Sutton (Health and Human Services)

Peter Vieira (Department of State)

Rick Wascak (Federal Accounting Standards Advisory Board)

*Presented by:*

Financial Management Service

Karen Metler, Cost Subcommittee Chairperson,

Standard General Ledger Phone: (202) 874-3815

Fax: (202) 874-7232

**[TABLE OF CONTENTS]{.underline}**

**SECTION I - Proposal for Restructuring of the Expense Account Series**

Proposed New SGL Accounts
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1

Proposed Changes to Existing SGL Accounts
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Proposed Deletions of Current SGL Accounts
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**SECTION II - Case Study**

Case Study Guidelines
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6

Expense Account Scenario - Illustrative Transactions, Trial Balances

and Closing Entries
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7

Statement of Net Cost
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14

Statement of Financing
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15

Illustrative Manufacturing Transactions
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16

**SECTION I**

**Proposal for**

**Restructuring of the Expense Account Series**

**Proposed *NEW* SGL Accounts**

**Account Title:** Expenses Not Requiring Budgetary Resources

**Account Number:** 6700

**Normal Balance:** Debit

**Type of Account:** Summary

**Definition:** Expenses that do not require budgetary resources, which
are most commonly the result of allocating asset costs to expenses over
more than one reporting period (e.g. depreciation).

**Justification:** This is a summary account for the following posting
accounts (6710, 6720, 6730, 6790) which are needed in order to prepare
the Statement of Financing.

**Account Title:** Depreciation, Amortization and Depletion

**Account Number:** 6710

**Normal Balance:** Debit

**Type of Account:** Posting

**Definition:** Expenses recognized by the process of allocating costs
of assets (tangible or intangible) over their useful lives/periods
benefitted.

**Justification:** Statement of Financing, Line 3A

**Account Title:** Bad Debt Expense

**Account Number:** 6720

**Normal Balance:** Debit

**Type of Account:** Posting

**Definition:** The amount of bad debt expense related to uncollectible
non-credit reform receivables from the public.

**Justification:** Statement of Financing, Line 3B

**Account Title:** Imputed Costs

**Account Number:** 6730

**Normal Balance:** Debit

**Type of Account:** Posting

**Definition:** Costs incurred which are paid in total or in part by
other entities.

**Justification:** To offset Imputed Financing Sources

**Account Title:** Other Expenses Not Requiring Budgetary Resources

**Account Number:** 6790

**Normal Balance:** Debit

**Type of Account:** Posting

**Definition:** Other costs which do not require budgetary resources.

**Justification:** Statement of Financing, Line 3E

**Account Title:** Future Funded Expenses

**Account Number:** 6800

**Normal Balance:** Debit

**Type of Account:** Posting

**Definition:** The amount of accrued expenses which are required to be
funded from future year appropriations. Examples include, but are not
limited to, accrued annual leave expense, accrued workers compensation,
and upward subsidy re-estimates for Credit Reform loan programs.

**Justification:** Statement of Financing, Line 4

**Proposed *CHANGES* to Existing SGL Accounts**

**Account Title:** Operating Expenses/Program ~~Expenses~~ Costs

**Account Number:** 6100

**Normal Balance:** Debit

**Type of Account:** Posting

**Definition:** Operating expenses and program costs not otherwise
classified below. ~~Operating/Program Expense is (1) the total outlay in
cash or its equivalent applied in carrying out a specific program or
function, (2) the total cost of goods sold plus all selling,
administrative, and general expenses applicable thereto, and (3) the
total cost assignable against operating income or profit.~~

**Justification:** The definition has been revised to reflect the
changes made to the following accounts (6400, 6500, 6700 series, 6800,
and 6900).

**Account Title:** Cost of Goods ~~or Services~~ Sold

**Account Number:** 6500

**Normal Balance:** Debit

**Type of Account:** Posting

**Definition:** The ~~total~~ cost of goods ~~or services~~ sold at
point of sale including the inventory value of commodities sold from
stock and all labor, material, and other expenses applied to
manufactured items sold.

**Justification:** To maintain the traditional concept for Cost of Goods
Sold as it relates to manufactured items sold.

**Account Title:** ~~Other Expenses~~ Non Production Costs

**Account Number:** 6900

**Normal Balance:** Debit

**Type of Account:** Posting

**Definition:** ~~Expenses not otherwise classified above.~~ Costs
incurred and recognized that are linked to events other than the
production of goods and services. Examples include, but are not limited
to, OPEB (refer to SFFAS #5, 94-96), acquisition of Federal Mission
Property, Plant and Equipment, Heritage PP&E, Stewardship Land,
reorganization costs, and nonrecurring cleanup costs resulting from
facility abandonments that are not accrued. This is in accordance with
FASAB #4 - Managerial Cost Accounting Concepts and Standards for the
Federal Government 103-104.

**Justification:** Other Expenses is no longer needed as these amounts
can now be captured in the other expense accounts. Non Production
Costs is needed in accordance with FASAB #4 - Managerial Cost
Accounting Concepts and Standards for the Federal Government 103-104
and for better facilitation of the Statement of Net Cost.

**Proposed *DELETIONS* of Current SGL Accounts**

**Account Title:** Benefit Program Expenses

**Account Number:** 6400

**Normal Balance:** Debit

**Type of Account:** Posting

**Definition:** Amounts paid to benefit programs by agencies on behalf
of their employees.

**Justification:** This account is no longer necessary. Depending upon
the nature of the fund, the amount will be captured in account 6100,
6800, 6900, or 7600.

**SECTION II**

**Case Study**

**Case Study Guidelines**

The following case study is presented to demonstrate the use of new or
revised U.S. Standard General Ledger accounts being proposed to the U.S.
Standard General Ledger Board for implementation for fiscal years
beginning October 1, 1998. **The case study focuses on expense accounts
only, and does not cover all situations**. It, in no way, purports to
represent the transactions of a specific agency of the U.S. Government.
The transactions contained within are illustrative in nature and are not
to be taken as formal guidance for any specific account type.

Furthermore, the sample reports presented after the case study are
included to demonstrate, only as examples, how the new or revised
accounts would be reported on Form and Content reports mandated by OMB
Bulletin No. 97-01 (Form and Content), dated October 16, 1996. The use
of sample formats from Form and Content does not preclude an agency from
using its own judgement consistent with OMB guidance.

**EXPENSE ACCOUNT SCENARIO**

**ILLUSTRATIVE TRANSACTIONS**

\*\* **BOLD** indicates new/modified accounts proposed for Fiscal Year
1999 implementation

1\. Agency receives appropriation (20,000) and estimated reimbursements
(10,000) which are fully apportioned and allotted. Warrant is issued
from Treasury.

**[Proprietary]{.underline}**

1010 Fund Balance with Treasury 20,000

3100 Unexpended Appropriations 20,000

**[Budgetary]{.underline}**

4119 Other Appropriations Realized 20,000

4210 Anticipated Reimbursements and Other Income 10,000

4610 Allotments - Realized Resources 20,000

4590 Apportionments - Unavailable 10,000

2\. Received order from another government entity

**[Proprietary]{.underline}**

1010 Fund Balance with Treasury 8,000

2310 Advances from Others 8,000

**[Budgetary]{.underline}**

4590 Apportionments - Unavailable 8,000

4610 Allotments - Realized Resources 8,000

4222 Unfilled Customer Orders With Advance 8,000

4210 Anticipated Reimbursements and Other Income 8,000

3\. To record estimated uncollectible receivables from the public not
associated with exchange revenue

**[Proprietary]{.underline}**

**6720 Bad Debt Expense** 400

1319 Allowance for Loss on Accounts Receivable 400

**[Budgetary]{.underline}** (none)

4\. Agency orders equipment

**[Proprietary]{.underline}** (none)

**[Budgetary]{.underline}**

4610 Allotments - Realized Resources 5,000

4801 Undelivered Orders - Unpaid 5,000

5\. Agency receives equipment above and pays invoice

**[Proprietary]{.underline}**

1750 Equipment 5,000

1010 Fund Balance with Treasury 5,000

3100 Unexpended Appropriations 5,000

5700 Appropriations Used 5,000

**[Budgetary]{.underline}**

4801 Undelivered Orders - Unpaid 5,000

4902 Expended Authority - Paid 5,000

6\. To record depreciation for use of this equipment

**[Proprietary]{.underline}**

**6710 Depreciation, Amortization and Depletion** 500

1759 Accumulated Depreciation on Equipment 500

**[Budgetary]{.underline}** (none)

7\. To record obligation for acquisition of federal mission PPE

**[Proprietary]{.underline}** (none)

**[Budgetary]{.underline}**

4610 Allotments - Realized Resources 10,000

4801 Undelivered Orders - Unpaid 10,000

8\. To record acquisition and payment of federal mission PPE

**[Proprietary]{.underline}**

**6900 Non Production Costs** 10,000

1010 Fund Balance with Treasury 10,000

3100 Unexpended Appropriations 10,000

5700 Appropriations Used 10,000

**[Budgetary]{.underline}**

4801 Undelivered Orders - Unpaid 10,000

4902 Expended Authority - Paid 10,000

9\. To obligate for expenses related to reimbursable order

**[Proprietary]{.underline}** (none)

**[Budgetary]{.underline}**

4610 Allotments - Realized Resources 1,000

4801 Undelivered Orders - Unpaid 1,000

10\. To record expenses and earnings from previous entry related to
services performed for another government entity

**[Proprietary]{.underline}**

**6100 Operating Expenses/Program Costs** 1,000

1010 Fund Balance with Treasury 1,000

2310 Advances from Others 1,000

5200 Revenue from Services Provided 1,000

**[Budgetary]{.underline}**

4801 Undelivered Orders - Unpaid 1,000

4902 Expended Authority - Paid 1,000

4252 Reimbursements and Other Income Earned - Coll 1,000

4222 Unfilled Customer Orders With Advance 1,000

11\. To record accrued annual unfunded leave liability

**[Proprietary]{.underline}**

**6800 Future Funded Expenses** 1,500

2220 Accrued Unfunded Liabilities 1,500

**[Budgetary]{.underline}** (none)

12\. To record pension expense (portion not paid by agency). (Assume
cost of pensions are 10,000 in excess of agency and employee
contributions based upon receipt of OPM memo.)

**[Proprietary]{.underline}**

**6730 Imputed Costs** 10,000

5780 Imputed Financing Sources 10,000

**[Budgetary]{.underline}** (none)

**PRE-CLOSING TRIAL BALANCES**

**[Proprietary]{.underline}**

+-------+------------------------------------------+--------+---------+
| 1010  | Fund Balance with Treasury               | 12,000 | 400     |
|       |                                          |        |         |
| 1319  | Allowance for Loss on Accounts           | 5,000  | 500     |
|       | Receivable                               |        |         |
| 1750  |                                          | 1,000  | 1,500   |
|       | Equipment                                |        |         |
| 1759  |                                          | 500    | 7,000   |
|       | Accumulated Depreciation on Equipment    |        |         |
| 2220  |                                          | 400    | 5,000   |
|       | Accrued Unfunded Liabilities             |        |         |
| 2310  |                                          | 10,000 | 1,000   |
|       | Advances from Others                     |        |         |
| 3100  |                                          | 1,500  | 15,000  |
|       | Unexpended Appropriations                |        |         |
| 5200  |                                          | 10,000 | 10,000  |
|       | Revenue from Services Provided           |        |         |
| 5700  |                                          | **40   | **4     |
|       | Appropriations Used                      | ,400** | 0,400** |
| 5780  |                                          |        |         |
|       | Imputed Financing Sources                |        |         |
| **6   |                                          |        |         |
| 100** | **Operating Expenses/Program Costs**     |        |         |
|       |                                          |        |         |
| **6   | **Depreciation, Amortization, and        |        |         |
| 710** | Depletion**                              |        |         |
|       |                                          |        |         |
| **6   | **Bad Debt Expense**                     |        |         |
| 720** |                                          |        |         |
|       | **Imputed Costs**                        |        |         |
| **6   |                                          |        |         |
| 730** | **Future Funded Expenses**               |        |         |
|       |                                          |        |         |
| **6   | **Non Production Costs**                 |        |         |
| 800** |                                          |        |         |
|       | **TOTALS**                               |        |         |
| **6   |                                          |        |         |
| 900** |                                          |        |         |
+-------+------------------------------------------+--------+---------+

**[Budgetary]{.underline}**

+-------+------------------------------------------+--------+---------+
| 4119  | Other Appropriations Realized            | 20,000 | 2,000   |
|       |                                          |        |         |
| 4210  | Anticipated Reimbursements and Other     | 2,000  | 12,000  |
|       | Income                                   |        |         |
| 4222  |                                          | 7,000  | 16,000  |
|       | Unfilled Customer Orders With Advance    |        |         |
| 4252  |                                          | 1,000  | **3     |
|       | Reimbursements and Other Income          |        | 0,000** |
| 4590  | Earned-Coll                              | **30   |         |
|       |                                          | ,000** |         |
| 4610  | Apportionments - Unavailable             |        |         |
|       |                                          |        |         |
| 4902  | Allotments - Realized Resources          |        |         |
|       |                                          |        |         |
|       | Expended Authority - Paid                |        |         |
|       |                                          |        |         |
|       | **TOTALS**                               |        |         |
+-------+------------------------------------------+--------+---------+

**CLOSING ENTRIES**

**[Proprietary]{.underline}**

C1) 5200 Revenue from Services Provided 1,000

5700 Appropriations Used 15,000

5780 Imputed Financing Sources 10,000

3310 Cumulative Results of Operations 26,000

C2) 3310 Cumulative Results of Operations 23,400

**6100 Operating Expenses/Program Costs** 1,000

**6710 Depreciation, Amortization, and Depletion** 500

**6720 Bad Debt Expense** 400

**6730 Imputed Costs** 10,000

**6800 Future Funded Expenses** 1,500

**6900 Non Production Costs** 10,000

**[Budgetary]{.underline}**

C1) 4590 Apportionments - Unavailable 2,000

4210 Anticipated Reimbursements and Other Income 2,000

C2) 4201 Total Actual Resources - Collected 21,000

4119 Other Appropriations Realized 20,000

4252 Reimbursements and Other Income Earned - Collected 1,000

C3) 4610 Allotments - Realized Resources 12,000

4450 Unapportioned Authority - Available 12,000

C4) 4902 Expended Authority - Paid 16,000

4201 Total Actual Resources - Collected 16,000

**POST-CLOSING TRIAL BALANCES**

**[Proprietary]{.underline}**

+-------+------------------------------------------+--------+---------+
| 1010  | Fund Balance with Treasury               | 12,000 | 400     |
|       |                                          |        |         |
| 1319  | Allowance for Loss on Accounts           | 5,000  | 500     |
|       | Receivable                               |        |         |
| 1750  |                                          | **17   | 1,500   |
|       | Equipment                                | ,000** |         |
| 1759  |                                          |        | 7,000   |
|       | Accumulated Depreciation on Equipment    |        |         |
| 2220  |                                          |        | 5,000   |
|       | Accrued Unfunded Liabilities             |        |         |
| 2310  |                                          |        | 2,600   |
|       | Advances from Others                     |        |         |
| 3100  |                                          |        | **1     |
|       | Unexpended Appropriations                |        | 7,000** |
| 3310  |                                          |        |         |
|       | Cumulative Results of Operations         |        |         |
|       |                                          |        |         |
|       | **TOTALS**                               |        |         |
+-------+------------------------------------------+--------+---------+

**[Budgetary]{.underline}**

+-------+------------------------------------------+--------+---------+
| 4201  | Expended Authority - Unpaid              | 5,000  | 12,000  |
|       |                                          |        |         |
| 4222  | Unfilled Customer Orders With Advance    | 7,000  | **1     |
|       |                                          |        | 2,000** |
| 4450  | Unapportioned Authority - Available      | **12   |         |
|       |                                          | ,000** |         |
|       | **TOTALS**                               |        |         |
+-------+------------------------------------------+--------+---------+

**STATEMENT OF NET COST**

**Program Costs**

Intragovernmental

Production (6100+6730+6800) 12,500

Nonproduction 0

Public

Production (6720+6710+6800) 900

Nonproduction (6900) [10,000]{.underline}

**Total Program Cost 23,400**

Less Earned Revenues (5200) [(1,000)]{.underline}

**Net Program Costs 22,400**

**Costs Not Assigned to Programs 0**

**Less Earned Revenues Not Attributable to Programs 0**

**Deferred Maintenance (Note reference)**

**Net Cost of Operations 22,400**

The elements contained in this case study are illustrative in nature.
Statement formats are generally taken from OMB Circular 97-01 (Form and
Content of Agency Financial Statements, dated October 16, 1996). OMB has
the authority to specify the form and content of agency financial
statements, so these samples are not authoritative. Furthermore, the
references to account numbers and/or calculations that crosswalk to
these statements shown above illustrate the result of the preceding
transactions only. They do not demonstrate all of the USSGL accounts
used on each statement. Refer to crosswalks published in the Treasury
Financial Manual Supplement #2 for official guidance on crosswalks to
each statement.

**STATEMENT OF FINANCING**

**Obligations and Nonbudgetary Resources**

Obligations Incurred (4902) 16,000

Less: Spending Authority from Offsetting Collections and Adjustments

Earned Reimbursements - Collected (4252) (1,000)

Increase in Unfilled Customer Orders (4222) (7,000)

Financing Imputed for Cost Subsidies (5780) [10,000]{.underline}

**Total Obligations as Adjusted and Nonbudgetary Resources 18,000**

**Resources That Do Not Fund Net Cost of Operations**

Costs Capitalized on the Balance Sheet:

General Property, Plant and Equipment(1750-1759+6710) (5,000)

Other: Increase in Unfilled Customer Orders (4222) [7,000]{.underline}

**Total Resources That Do Not Fund Net Costs of Operations 2,000**

**Costs That Do Not Require Resources**

Depreciation and Amortization (6710) 500

Bad Debts Rel to Uncoll Non-Credit Reform Receivables (6720)
[400]{.underline}

**Total Costs That Do Not Require Resources 900**

**Financing Sources Yet to be Provided (6800) [1,500]{.underline}**

**Net Cost of Operations 22,400**

The elements contained in this case study are illustrative in nature.
Statement formats are generally taken from OMB Circular 97-01 (Form and
Content of Agency Financial Statements, dated October 16, 1996). OMB has
the authority to specify the form and content of agency financial
statements, so these samples are not authoritative. Furthermore, the
references to account numbers and/or calculations that crosswalk to
these statements shown above illustrate the result of the preceding
transactions only. They do not demonstrate all of the USSGL accounts
used on each statement. Refer to crosswalks published in the Treasury
Financial Manual Supplement #2 for official guidance on crosswalks to
each statement.

**ILLUSTRATIVE ENTRIES FOR A MANUFACTURING ENTITY**

*These entries are for illustrative purposes only, and **do not
correspond** in any way to the previous entries. Likewise, the amounts
are **not** included in the Trial Balances, Closing Entries or Form and
Content Statements that are present in this proposal. These entries are
provided to illustrate the use of the proposed expense accounts for a
manufacturing entity. A comprehensive inventory scenario, including this
portion, will be available in the near future.*

1\. To record factory overhead (2,000) such as rent and utilities,
depreciation on equipment (500), and indirect labor (3,000)

**[Proprietary]{.underline}**

**6100 Operating Expenses/Program Costs** (overhead) 5,000

**6710 Depreciation, Amortization and Depletion** (overhead) 500

1759 Accumulated Depreciation on Equipment 500

2110 Accounts Payable 2,000

2210 Accrued Funded Payroll and Benefits 3,000

**[Budgetary]{.underline}**

4801 Undelivered Orders - Unpaid 5,000

4901 Expended Authority - Unpaid 5,000

2\. To record applied overhead (the budget rate is determined to be
\$5.00/per direct labor hour. The direct labor hour was determined to be
900 hours. 900 hours \* \$5.00 = \$4,500)

**[Proprietary]{.underline}**

1526 Inventory - Work in Process 4,500

6600 Applied Overhead 4,500

**[Budgetary]{.underline}** (none)

3\. To record sale of goods

**[Proprietary]{.underline}**

**6500 Cost of Goods Sold** 8,000

1527 Inventory - Finished Goods 8,000

1310 Accounts Receivable 10,000

5100 Revenue from Goods Sold 10,000

**[Budgetary]{.underline}**

4251 Reimbursements and Other Income Earned - Receivable 10,000

4221 Unfilled Customer Orders Without Advance 10,000

4\. To close [underapplied]{.underline} overhead[^1] (overhead is
budgeted less than the actual), which is deemed [immaterial]{.underline}

**[Proprietary]{.underline}**

6600 Applied Overhead 4,500

**6500 Cost of Goods Sold** 1,000

**6100 Operating Expenses/Program Costs** (overhead) 5,000

**6710 Depreciation, Amortization, and Depletion** (overhead) 500

(If overapplied, the adjustment would be credited to Cost of Goods
Sold.)

**[Budgetary]{.underline}** (none)

*If the difference between the actual and applied amount is
[material]{.underline}, then the difference is prorated to Work in
Process, Finished Goods and Cost of Goods Sold*.

*To close overhead accounts and prorate [underapplied]{.underline}
overhead among the three accounts:*

*1526 Inventory - Work in Process xxx*

*1527 Inventory - Finished Goods xxx*

*6500 Cost of Goods Sold xxx*

*6600 Applied Overhead xxx*

*6100 Operating Expenses/Program Costs (overhead) xxx*

*(and other actual overhead accounts) xxx*

*To close overhead accounts and prorate [overapplied]{.underline}
overhead among the three accounts:*

*6600 Applied Overhead xxx*

*1526 Inventory - Work in Process xxx*

*1527 Inventory - Finished Goods xxx*

*6500 Cost of Goods Sold xxx*

*6100 Operating Exp/Program Costs (overhead) xxx*

*(and other actual overhead accounts) xxx*

[^1]: ^?^ If the underapplied or overapplied amount is
    [immaterial]{.underline}, the difference in the applied and the
    actual amount is adjusted to Cost of Goods Sold. But if the
    underapplied or overapplied amount is [material]{.underline} then
    the difference is prorated to Work in Process, Finished Goods, and
    Cost of Goods Sold. (Charles T. Horngren, George Foster, [Cost
    Accounting A Managerial Emphasis]{.underline}, 6th edition, pp.
    103-104).