Section 13.4 - Accrual Accounting and Encumbrances

Date: February 2005
Approved: Senior Associate Vice President for Business and Finance

The University maintains its funds and prepares financial statements using the accrual basis of accounting. Under this method of accounting, revenues are reported when earned, and expenditures are reported when materials or services are received. Receivables and payables are accrued for year-end reporting purposes.

Encumbrances

Under the University's accrual accounting system, expenses are recorded in Banner when the purchase order or invoice is processed for payment or the materials or services are received. Anticipated expenses are considered potential or actual financial obligations (a legal agreement to pay). They may be established as encumbrances in Banner, the University's financial system. Manual encumbrances may be established to designate funds for anticipated expenses, such as purchase requisitions. Banner will establish encumbrances in the general ledger for purchase orders issued and are considered legal requirements to pay.

Internal services - Encumbrances for internally provided goods and services are not recognized nor recorded in University funds. This generally means that all goods and services paid for by internal transfer are entered on a journal voucher. However, a manual encumbrance may be entered as a commitment against the funds.

Reporting to State Comptroller - With certain exceptions, all obligations of $5,000 or more must be reported to the State Comptroller. Exceptions include personal services, travel, telecommunications, refunds, utility payments, awards and grants not reported, and leases regardless of dollar amount.

Year-end reporting - Encumbrances against all funds, regardless of amount, are recognized and recorded as of June 30 each fiscal year. Some encumbrances are described in footnote disclosures.

Please send questions regarding this policy manual to OBFSPolicies@uillinois.edu.

Last Updated: March 23, 2008