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

**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 LedgerPhone:  (202) 874-3815

Fax: (202) 874-7232

**TABLE OF CONTENTS**

**PRIVATE SECTIONtc  \l 1 "SECTION" I - Proposal for Restructuring of the Expense Account Series**

Proposed New SGL Accounts .......................................................................     1

Proposed Changes to Existing SGL Accounts ..............................................     3

Proposed Deletions of Current SGL Accounts ..............................................     5

**SECTION II - Case Study**

Case Study Guidelines ..................................................................................      6

Expense Account Scenario - Illustrative Transactions, Trial Balances

and Closing Entries .......................................................................................      7

Statement of Net Cost ...................................................................................    14

Statement of Financing .................................................................................    15

Illustrative Manufacturing Transactions .......................................................    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**

1010Fund Balance with Treasury20,000

3100Unexpended Appropriations20,000

**Budgetary**

4119Other Appropriations Realized20,000

4210Anticipated Reimbursements and Other Income10,000

4610Allotments - Realized Resources20,000

4590Apportionments - Unavailable10,000

2.Received order from another government entity

**Proprietary**

1010Fund Balance with Treasury8,000

2310Advances from Others8,000

**Budgetary**

4590Apportionments - Unavailable8,000

4610Allotments - Realized Resources8,000

4222Unfilled Customer Orders With Advance8,000

4210Anticipated Reimbursements and Other Income8,000

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

**Proprietary**

**6720Bad Debt Expense**400

1319Allowance for Loss on Accounts Receivable400

**Budgetary**  (none)

4.Agency orders equipment

**Proprietary**  (none)

**Budgetary**

4610Allotments - Realized Resources5,000

4801Undelivered Orders - Unpaid5,000

5.Agency receives equipment above and pays invoice

**Proprietary**

1750Equipment5,000

1010Fund Balance with Treasury5,000

3100Unexpended Appropriations5,000

5700Appropriations Used5,000

**Budgetary**

4801Undelivered Orders - Unpaid5,000

4902Expended Authority - Paid5,000

6.To record depreciation for use of this equipment

**Proprietary**

**6710Depreciation, Amortization and Depletion**500

1759Accumulated Depreciation on Equipment500

**Budgetary**  (none)

7.To record obligation for acquisition of federal mission PPE

**Proprietary**  (none)

**Budgetary**

4610Allotments - Realized Resources10,000

4801Undelivered Orders - Unpaid10,000

8.To record acquisition and payment of federal mission PPE

**Proprietary**

**6900Non Production Costs**10,000

1010Fund Balance with Treasury10,000

3100Unexpended Appropriations10,000

5700Appropriations Used10,000

**Budgetary**

4801Undelivered Orders - Unpaid10,000

4902Expended Authority - Paid10,000

9.To obligate for expenses related to reimbursable order

**Proprietary**  (none)

**Budgetary**

4610Allotments - Realized Resources1,000

4801Undelivered Orders - Unpaid1,000

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

**Proprietary**

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

1010Fund Balance with Treasury1,000

2310Advances from Others1,000

5200Revenue from Services Provided1,000

**Budgetary**

4801Undelivered Orders - Unpaid1,000

4902Expended Authority - Paid1,000

4252Reimbursements and Other Income Earned - Coll1,000

4222Unfilled Customer Orders With Advance1,000

11.To record accrued annual unfunded leave liability

**Proprietary**

**6800Future Funded Expenses**1,500

2220Accrued Unfunded Liabilities1,500

**Budgetary**  (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**

**6730Imputed Costs**10,000

5780Imputed Financing Sources10,000

**Budgetary**  (none)

**PRE-CLOSING TRIAL BALANCES**

**Proprietary**

PRIVATE 1010

1319

1750

1759

2220

2310

3100

5200

5700

5780

**6100**

**6710**

**6720**

**6730**

**6800**

**6900**

Fund Balance with Treasury

Allowance for Loss on Accounts Receivable

Equipment

Accumulated Depreciation on Equipment

Accrued Unfunded Liabilities

Advances from Others

Unexpended Appropriations

Revenue from Services Provided

Appropriations Used

Imputed Financing Sources

**Operating Expenses/Program Costs**

**Depreciation, Amortization, and Depletion**

**Bad Debt Expense**

**Imputed Costs**

**Future Funded Expenses**

**Non Production Costs**

**TOTALS**

12,000

5,000

1,000

500

400

10,000

1,500

10,000

**40,400**

400

500

1,500

7,000

5,000

1,000

15,000

10,000

**40,400**

**Budgetary**

PRIVATE 4119

4210

4222

4252

4590

4610

4902

Other Appropriations Realized

Anticipated Reimbursements and Other Income

Unfilled Customer Orders With Advance

Reimbursements and Other Income Earned-Coll

Apportionments - Unavailable

Allotments - Realized Resources

Expended Authority - Paid

**TOTALS**

20,000

2,000

7,000

1,000

**30,000**

2,000

12,000

16,000

**30,000**

**CLOSING ENTRIES**

**Proprietary**

C1)5200Revenue from Services Provided  1,000

5700Appropriations Used15,000

5780Imputed Financing Sources10,000

3310Cumulative Results of Operations26,000

C2)3310Cumulative Results of Operations23,400

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

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

**6720Bad Debt Expense**     400

**6730Imputed Costs**10,000

**6800Future Funded Expenses**  1,500

**6900Non Production Costs**10,000

**Budgetary**

C1)4590Apportionments - Unavailable2,000

4210Anticipated Reimbursements and Other Income2,000

C2)4201Total Actual Resources - Collected21,000

4119Other Appropriations Realized20,000

4252Reimbursements and Other Income Earned - Collected  1,000

C3)4610Allotments - Realized Resources12,000

4450Unapportioned Authority - Available12,000

C4)4902Expended Authority - Paid16,000

4201Total Actual Resources - Collected16,000

**POST-CLOSING TRIAL BALANCES**

**Proprietary**

PRIVATE 1010

1319

1750

1759

2220

2310

3100

3310

Fund Balance with Treasury

Allowance for Loss on Accounts Receivable

Equipment

Accumulated Depreciation on Equipment

Accrued Unfunded Liabilities

Advances from Others

Unexpended Appropriations

Cumulative Results of Operations

**TOTALS**

12,000

5,000

**17,000**

400

500

1,500

7,000

5,000

2,600

**17,000**

**Budgetary**

PRIVATE 4201

4222

4450

Expended Authority - Unpaid

Unfilled Customer Orders With Advance

Unapportioned Authority - Available

**TOTALS**

5,000

7,000

**12,000**

12,000

**12,000**

**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

**Total Program Cost23,400**

Less Earned Revenues (5200) (1,000)

**Net Program Costs22,400**

**Costs Not Assigned to Programs          0**

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

**Deferred Maintenance (Note reference)**

**Net Cost of Operations22,400**

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

**Total Obligations as Adjusted and Nonbudgetary Resources18,000**

**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

**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

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

**Financing Sources Yet to be Provided (6800)  1,500**

**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**

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

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

1759Accumulated Depreciation on Equipment   500

2110Accounts Payable2,000

2210Accrued Funded Payroll and Benefits3,000

**Budgetary**

4801Undelivered Orders - Unpaid5,000

4901Expended Authority - Unpaid5,000

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**

1526Inventory - Work in Process4,500

6600Applied Overhead4,500

**Budgetary**  (none)

3.To record sale of goods

**Proprietary**

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

1527Inventory - Finished Goods8,000

1310Accounts Receivable10,000

5100Revenue from Goods Sold10,000

**Budgetary**

4251Reimbursements and Other Income Earned - Receivable10,000

4221Unfilled Customer Orders Without Advance10,000

4.To close underapplied overhead (overhead is budgeted less than the actual), which is deemed immaterial

**Proprietary**

6600Applied Overhead4,500

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

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

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

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

**Budgetary**  (none)

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

*To close overhead accounts and prorate underapplied overhead among the three accounts:*

*1526Inventory - Work in Processxxx*

*1527Inventory - Finished Goodsxxx*

*6500Cost of Goods Soldxxx*

*6600Applied Overheadxxx*

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

*(and other actual overhead accounts)xxx*

*To close overhead accounts and prorate overapplied overhead among the three accounts:*

*6600Applied Overheadxxx*

*1526Inventory - Work in Processxxx*

*1527Inventory - Finished Goodsxxx*

*6500Cost of Goods Soldxxx*

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

*(and other actual overhead accounts)xxx*

     � If the underapplied or overapplied amount is immaterial, 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 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, 6th edition, pp. 103-104).