UPWARD AND DOWNWARD ADJUSTMENTS TO PRIOR YEAR OBLIGATIONS

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GUIDE FOR BASIC ACCOUNTING AND REPORTING

FOR UPWARD AND DOWNWARD ADJUSTMENTS TO 

PRIOR YEAR OBLIGATIONS

(Effective Fiscal Year 2018)

GENERAL LEDGER AND ADVISORY BRANCH 

FISCAL ACCOUNTING OPERATIONS

BUREAU OF THE FISCAL SERVICE

U.S. DEPARTMENT OF THE TREASURY

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Overview

This guide is designed for those who:

· Prepare agency Financial and non-Financial statements;

· Audit the agency financial statements;

· Manage or provide service to participants in upward and downward adjustments

· Design and maintain computer systems for financial programs;

· Instruct others in basic accounting and reporting.

In order to understand and gain the most from this guide, users must have a working knowledge of the following:

· Budgetary and proprietary accounting, reporting, and terminology;

· The United States Standard General Ledger (USSGL) accounts for basic multiyear and annual appropriations, revolving fund and Special and Trust Funds 

· The concepts of Federal credit program accounting and reporting, fund structures, and terminology.  

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Scenario Assumptions

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# Scenarios can vary depending on many variables.  Below is clarifying guidance to assist in the identification of an upward or downward adjustment.   

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# In general, the status of the appropriation (unexpired vs. expired) is not used as a basis for determining upward or downward adjustments.  This scenario can be applied to annual, no year as well as multiple year appropriations.  This scenario occurs as a two year multiyear appropriation.

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The basis for determining whether a transaction should be classified as an upward or downward adjustment depends on the specific event and the fiscal year of the adjustment.  Upward and downward adjustments are based strictly on dollar value adjustments.  An error or mistake does not constitute an upward or downward adjustment.  In addition, changes to the budget/accounting structure (i.e. object class, direct/reimbursable indicator, budget (cost) center, program, Federal/nonfederal indicator, vendor code, etc. [within a TAFS]) does not constitute an upward or downward adjustment.  **Reference to OMB guidance Appendix F of OMB Circular No. A-11.**

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# **Unexpired and Expired Phase TAS:**

# · Upward and downward adjustments occur in subsequent years (year two and later), year one and year two are unexpired.  The upward or downward adjustments are to be recorded in year two if the original transaction occurred in year one.  

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# **Recovery of prior year Obligations:**

# · During the expired phase the upward and downward adjustments occur in subsequent years (year two and later) when year one was unexpired and year two was expired whereby expired unobligated balances are available for upward adjustments of obligations (obligated or paid).

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# **Unpaid:**

# · Upward and downward adjustments of prior year unpaid obligations occur in subsequent years (year two and later**)**, even if year one and year two are unexpired.  

Refunds of Prior Year Paid Obligations: 

· Downward adjustments of prior year paid obligations should occur in subsequent years (year two and later).  Original disbursement adjustments in year one (first year of disbursement) do not require a downward adjustment.    

# **Prior Year Budgetary entries:**

# · All budgetary accounts with the GTAS domain value is X where applicable unless otherwise specified

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# The Chart of Accounts and beginning trial balance will be the same for all years, and the outstanding orders differently illustrated for each TAS Year.  The scenario highlights events that occur during the second year of a two year appropriation as well as the third, fourth, and fifth year (expired) of the appropriation. The assumption is that funds have been apportioned and allotted through year five. Matching USSGL Section III Transaction Codes are shown at the end of the description and/or in the Table for each entry.  Where necessary, a new transaction Code is proposed and shown in ***italics***. This scenario does not include entries for cancellations.  

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Several blocks of Purchase Order numbers are used in the scenario.  PO numbers falling in the range of 10 through 50 are used for Purchase Orders that were outstanding at the beginning of the first year.  Purchase Order numbers 101, 102, 103, and 104 are used for transactions that occurred in Year two of the two year appropriations.  No new PO’s were incurred in Year two.

CHART OF ACCOUNTS

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Listing of USSGL Accounts Used in This Scenario

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# **USSGL TAS Scenario**

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# **TRIAL BALANCE**

## BEGINNING OF SECOND YEAR AFTER INITIAL APPORTIONMENT AND ALLOTMENT

### **480100 Undelivered Orders – Obligations, Unpaid**

#### PO#10 = 7,000       Fed

#### PO#15 =    600    NFed

PO#20 = 5,000    NFed

PO#25 = 1,200       Fed

PO#30 = 8,000    NFed

### **480200 Undelivered Orders - Obligations, Paid**

#### PO#40 = 2,000     Fed 

#### PO#45 =    220   NFed

###### 490100 Delivered Orders – Obligation, Unpaid

PO#50 = 4,500     Fed

UNPAID

1.  Due to a dollar value contract modification adjustment, PO#10 increases from $7,000 to $8,600.  No goods and services were delivered.  Post an upward adjustment to Undelivered Orders – Obligations, Unpaid USSGL Account 488100.  

2. Goods and Services delivered for $9,000 against PO#10 for $8,600.  Post an upward adjustment to Undelivered Orders – Obligations, Unpaid USSGL Account 488100.

3. Goods and services delivered for $655 against PO#15 for $600.  Post an upward adjustment to Undelivered Orders - Obligations, Unpaid USSGL Account 498100.  

4a. Delivered a progress billing for $330 against PO#25 for $1,200. 

4b. The progress bill is for $30 more than originally anticipated for this portion of the order.  No payment made at this time.  Post an upward adjustment to Upward Adjustments of Prior-Year Undelivered Orders – Obligations, Unpaid USSGL Account 498100.  

5. Due to a dollar value contract modification adjustment, PO#20 is reduced from $5,000 to $4,700. No goods or services delivered.   Post a downward adjustment to Downward Adjustments of Prior-Year Unpaid Undelivered Orders – Obligations, Recoveries USSGL Account 487100. 

6. Goods, services delivered for $2,700 against PO#20 for $4,700.  Post a downward adjustment to Downward Adjustments of Prior Prior-Year Unpaid Undelivered Orders – Obligations, Recoveries USSGL Account 487100.  

7. Due to a dollar value contract modification adjustment, a previously unrecorded obligation of $4,000 - PO#101 is discovered.  No goods, services or invoice delivered.  The obligation is properly chargeable to the prior year.    **

8. Goods and services of $4,000 are delivered for PO#101.  

Note: This transactions represents an adjustment to a current year Unpaid obligation.

9. An error was discovered recording PO#101 in Year 2.  Purchase Order should have been recorded on line 2 versus Line 1 of contract.  Additionally, the budget (cost) center and object class were incorrect in the budget/accounting structure.  Based on the error no dollar value contract value changed.  Therefore, this does not constitute a dollar value contract modification adjustment justifying an upward or downward adjustment of a prior year obligation. 

PAID

10.  Goods and services of $4,000 are paid for PO#101.  Payment of a previously recorded unpaid obligation is not an adjustment.  

11.   Due to a dollar value contract modification adjustment, PO#30 decreased by $80 in Year 2. No goods and services are delivered.  Post Downward Adjustments of Prior-Year Unpaid Undelivered Orders- Obligations, Recoveries.

12. The $80 dollar value contract modification adjustment was determined to be incorrect in Year 2 and should have only been a $50 decrease to PO#30.  No goods and services have been delivered.  Post a reversal of the Downward Adjustments of Prior-Year Unpaid Undelivered Orders- Obligations, Recoveries (previously recorded in transaction 11, in Year 2).

Note:  Even though there is a possibility of an abnormal balance in Year 2 with USSGL 487100, the documentation supporting the adjustment is the contract modification to Year 2, in this situation the GTAS prior year adjustment domain value is “P’.     

PRE-CLOSING ENTRIES SECOND YEAR

###### PC1.  Close Anticipated Recoveries of Prior Year Obligations

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###### CLOSING ENTRIES FOR SECOND YEAR

UNPAID

###### C1.  To record the closing of upward adjustments and transfers to undelivered orders – obligations, unpaid.  

###### C2.  To record the closing of downward adjustments and transfers to undelivered orders – obligations, unpaid.  

PAID

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###### C3.  To record the closing of expended authority – paid.  

C4.  To record the closing of revenue, expense and other financing source accounts to cumulative results of operations.  

C5. To record closing of fiscal-year activity to unexpended appropriations. 

###### C6.  To record the closing of unobligated balances to expiring authority.

### **480100 Undelivered Orders-Obligations, Unpaid**

PO#25 = 900  Fed

    PO#30 = 7,950 NFed

### **480200 Undelivered Orders - Obligations, Prepaid/Advanced**

#### PO#40 = 2,000     Fed 

#### PO#45 =    220   NFed

###### 490100 Delivered Orders – Obligations, Unpaid

PO#10 = 9,000    Fed

PO#15 =    655  NFed

PO#20 = 2,700  NFed

PO#25 =    330     Fed

PO#50 = 4,500     Fed

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THIRD YEAR

13.  Advanced payment processed for outstanding PO#30 for $7,950

14.  Payment processed for outstanding PO#10 for $9,000 and PO#20 for $2,700.   Payment of an outstanding obligation in an expired year is not an adjustment. 

15.  Received dollar value contract modification adjustment for goods and services of a $700 increase to PO#40 (Fed).  The goods and services were paid in advance.  Post an upward adjustment to Upward Adjustments of Prior-Year Undelivered Orders-Obligations, Prepaid/Advanced– USSGL Account 488200.  This transaction is a valid adjustment an existing unpaid obligation recorded during the unexpired phase.

16.  Received dollar value contract modification adjustment for a $40 increase on PO#45.  Invoice NOT paid.  No goods and services delivered.  Post an upward adjustment to Upward Adjustments of Prior-Year Undelivered Orders -– Obligations, Unpaid USSGL Account 488100.  This transaction is a valid adjustment an existing unpaid obligation recorded during the unexpired phase.

17. Prepaid PO#30 (Non Fed) for $7,950 is reduced to $6,800 and the refund is collected.  No goods and services are delivered.  Post a downward adjustment to Downward Adjustments of Prior-Year Prepaid/Advanced Undelivered Orders -Obligations Refund Collected USSGL Account 487200. 

18.  Prepaid PO#40 (Fed) for $2,700 (after transaction #11) is reduced to $2,410.  Do not collect refund.  Reclassify advance to receivable. No goods or services delivered.  

19.  Prepaid PO#30 for $6,800 will be reduced to $4,950. Do not collect refund.  Reclassify advance to a receivable.  No goods or services delivered. A budgetary resource canno*t* be recorded because PO#30 is with a non-Federal entity.   

20.  Partial portion of goods and services delivered for $3,200 against PO#30.  PO is not complete.  

NO PRE-CLOSING ADJUSTING ENTRIES REQUIRED FOR EXPIRED YEAR 3

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# **PRE-CLOSING TRIAL BALANCE**

## *EXPIRED YEAR 3*

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###### CLOSING ENTRIES FOR EXPIRED YEAR 3

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###### C1.  To record the closing of downward adjustments to Unexpended Obligations – refund collected.  

###### C2.  To record the closing of upward adjustments to Unexpended Obligations Paid.  

###### C3.  To record the closing of upward adjustments to Undelivered Orders - Obligations, Unpaid.  

###### C4.  To record the closing of expended authority – paid.  

C5.  To record the closing of revenue, expense and other financing source accounts to Cumulative Results of Operations.  

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C6. To record closing of fiscal-year activity to unexpended appropriations.

C7. To record the closing of downward adjustments and transfers to Undelivered Orders - Obligations, Unpaid.

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# **POST-CLOSING TRIAL BALANCE**

## 	END OF EXPIRED YEAR 3	

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###### 480100 Undelivered Orders - Obligations, Unpaid

PO#25 = 900     Fed

PO#45 =    40  NFed

480200 Undelivered Orders – Obligations, Paid

PO#30 = 3,600  NFed

#### PO#40 = 2,700     Fed

PO#45 = 220      NFed

###### 490100 Expended Authority – Unpaid

PO#15 =   655 NFed

PO#25 =   330    Fed

PO#50 = 4,500   Fed

FOURTH YEAR

21.  Pay first progress bill for PO#25 for $330.  

22.  Receive, but do not pay, a second progress bill for PO#25 for $450.  The second progress bill was $50 less than the unpaid obligations for this phase of the order.  

23. Goods and services are delivered for a $500 order, but never recorded in an unexpired year – PO#102.  Post a Delivered Orders - Obligations, Unpaid USSGL Account 490100.  

Note:  The Obligation was not recorded in year 2 and now it is being recorded as a PYAP in Year 4 with USSGL 490100, in this situation the GTAS prior year adjustment domain value is “P’.     

24.  Goods and services were delivered for $3,000 against PO#50, presently recorded for $4,500.  Post a downward adjustment to Downward Adjustments of Prior-Year Unpaid Delivered Orders - Obligations, Recoveries USSGL Account 497100.  This adjustment is not material. If the adjustment is material, make a prior-period adjustment to USSGL Account 740000, 740500 or 740100.  

NO PRE-CLOSING ADJUSTING ENTRIES REQUIRED FOR EXPIRED YEAR 4

# **PRE-CLOSING TRIAL BALANCE**

## *EXPIRED YEAR 4*

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###### CLOSING ENTRIES FOR EXPIRED YEAR 4

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###### C1.  To record the closing of adjustments to Unpaid Delivered Orders – Obligations, Unpaid.  

###### C2.  To record the closing of adjustments to Undelivered Orders - Obligations, Unpaid.  

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###### C3.  To record the closing of Paid Delivered Orders – Obligations, Paid.  

C4.  To record the closing of revenue, expense and other financing source accounts to Cumulative Results of Operations.

C5. To record closing of fiscal-year activity to Unexpended Appropriation – Cumulative. 

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# **POST-CLOSING TRIAL BALANCE**

## END OF EXPIRED YEAR 4

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### **480100 Undelivered Orders - Obligations, Unpaid**

PO#25 = 400     Fed

#### PO#45 =    40  NFed

### **480200 Undelivered Orders - Obligations, Paid**

PO#30 = 3,600  NFed

#### PO#40 = 2,700    Fed

#### PO#45 =    220  NFed

###### 490100 Expended Authority – Unpaid

PO#15  =   655 NFed

PO#25  =   450    Fed

PO#50  = 3,000   Fed

PO#102  =  500   Fed

FIFTH YEAR

25. Received a corrected invoice for the amount of $3,000 for PO#100 for previously delivered and paid goods and services.  Post an Upward Adjustment of Prior Delivered Orders – Obligations, Paid USSGL Account  498200.  

26. Collect refund receivable from non-Federal entity of $1,850 on PO#30. (From transaction 18 in year 3)

27. Received a corrected invoice for the amount of $25 for PO#101 for previously delivered, paid goods and services. Post and upward adjustment of Prior year Delivered Orders-Obligations, Unpaid USSGL Account 498100, that the agency is not required to pay at this time.

28.  Received a $500 refund for overpayment of Goods and Services of PO#102.  Post a Downward Adjustments of Prior-Year Paid Delivered Orders - Obligations, Refunds Collected USSGL Account 497200.  The downward adjustment is not material.  If material, the adjustment would be treated as a prior-period adjustment using USSGL Account 740000.  

29.  Paid for goods and services outstanding PO#50 for $3,000.  

30.  Paid for goods and services outstanding PO#25 for $450.  

31.  Received a corrected invoice for the amount of $2,380 for PO#103 for previously delivered, paid goods and services paid in the amount of 3,000.  Post a Downward Adjustment of Prior Delivered Orders – Obligations, Paid USSGL Account 497200.

32. Received a corrected invoice for the amount of $265 for PO#104 for previously delivered, paid goods and services paid in the amount of $1,000.  Post a Downward Adjustment of Prior Delivered Orders – Obligations, Paid USSGL Account 497200.

33. Paid for goods and services delivered PO#15 of $655.  

34.  Paid for goods and services delivered for second progress bill for PO#25. 

35.  Goods and services delivered in the amount of $2,410 for PO#40, resulting in a $290 refund.  (Transaction #14 in year 3)  

36.  Paid for goods and services delivered for PO#45.   

Note: PO#45 = 480200 of $220   +   488100 of $40 (Trans #12).  

37.  Paid for goods and services delivered for PO#102 for $500.   

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38.  Paid for goods and services delivered for PO#30 for $1,750.   

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39. Collect refund from Federal entity against PO#103.   **

40. Collect refund receivable from non-Federal entity against PO#104. 

41.  Paid for goods and services for PO#101 in transaction #23.  

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# **PRE-CLOSING TRIAL BALANCE**

## *EXPIRED YEAR 5*

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NO PRE-CLOSING ADJUSTING ENTRIES REQUIRED

###### CLOSING ENTRIES

###### C1.  To record the closing of adjustments to Paid Delivered Orders – Obligations, Paid.  

###### C2.  To record the closing of adjustments to Total Actual Resources – Collected.  

###### C3.  To record the closing of adjustments to Undelivered Orders - Obligations, Prepaid/Advanced.  

C4.  To record the closing of revenue, expense and other financing source accounts to Cumulative Results of Operations.

C5. To record closing of fiscal-year activity to unexpended appropriations. 

# **POST-CLOSING TRIAL BALANCE**

## END OF EXPIRED YEAR 5

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IRC Handout March 1, 2018