This policy establishes when operational expenses must be recorded at the University. The University reports its expenses on the accrual basis, meaning when the expenses are incurred, not necessarily when they are paid. Expenses are generally incurred when Harvard receives goods or services.
Reason for Policy
This policy exists to ensure adherence with Generally Accepted Accounting Principles (GAAP) and other regulatory requirements, to promote consistent accounting treatment across the University, and to ensure the operating results of University units are not misstated as a result of expenses unrecorded or recorded improperly.
Who Must Comply
All Harvard University schools, tubs, local units, Affiliate Institutions, Allied Institutions and University-wide Initiatives must comply.
- Understand accrual rules for expense recognition.
- Accrual accounting rules require Harvard to record expenses when they are incurred, meaning when the goods are received or the services are provided, whether or not an invoice has been received or payment has been made.
- Balance sheet entries: if Harvard doesn’t pay for goods/services in the same quarter as it receives them, then Harvard needs to record an entry on its balance sheet. The type of balance sheet entry depends on when Harvard receives the goods/services relative to when Harvard pays for them. The tubs and Central administration are each responsible for recording balance sheet entries for certain types of expenses. See Appendix A.
- Do not record balance sheet entries for internal transactions. No accruals or prepaid expense items should be recorded for internal transactions. See the University’s Internal Billing Transactions Policy.
- Record balance sheet entries as needed.
- Central offices process certain types of expenses, such as accrued expenses for quarter-end salaries and wages. See Appendix B for school/tub responsibilities by expense type.
- Thresholds: At the end of each quarter, tubs must record certain manual entries for items not yet paid through the Central A/P system, if over the thresholds below (which exclude construction in progress (CIP) items). Smaller items may be recorded at each tub’s discretion.
- Quarter-end: manual entries are required for items of $50,000 or more ($100,000 for large schools – FAS, HMS, HBS, SPH).
- Year-end: manual entries are required for items greater than or equal to $10,000.
- Apply special accounting rules for certain types of expenses.
- Expense credits
- Receipts that offset or reduce expense items are considered credits to expenses. Expense credits include purchase discounts; rebates and allowances; recoveries or indemnities on losses; and adjustments for overpayments or erroneous charges.
- Unless a specific object code exists to record such expense credits, they must be recorded as credits to the original expense coding, (i.e., the 33-digit coding used to initially record the expense or payment that is being reimbursed), not as income or credits to object code 8880, “Expense Credits, Other, GENERAL."
- Pass-throughs: DO NOT record revenue for pass-through expenses and expense reimbursements or recoveries, record these as credits to the original expense coding. For example: if Harvard partners with another university to hold a conference and receives reimbursement for some of the conference costs (i.e., NOT conference attendance fee revenue), the reimbursement should be credited to the appropriate expense object code or codes, not recorded as revenue.
- Maintain appropriate supporting documentation. The tubs must maintain documentation supporting expense transactions that details the nature of the goods or services received (or to be received), such as account coding to charge, the date the goods or services were (or will be) provided, authorization from the approver ordering the goods or services, and vendor contact information.
- Review and reconcile balances. All tubs must reconcile and maintain supporting documentation for manually-recorded quarter-end accrued expense, prepaid expense, and deposits paid balances. Investigate variances and take corrective action on a quarterly basis at minimum.
- Reverse or reduce entries as needed. The unit that processes a manual accrued expense, prepaid expense or deposits paid entry is responsible for reversing the entry when payment is made or goods/services received.
Responsibilities and Contacts
Financial deans or equivalent tub financial officers are responsible for ensuring that local units abide by this policy and the accompanying procedures. The tubs have ultimate responsibility for accrued expense, prepaid expense and deposits paid balances.
Financial Accounting and Reporting (FAR), within the Office of the Controller, is responsible for maintaining this policy and for answering questions regarding the policy. Contact: (617) 495-8032
Central Accounts Payable Office (Central A/P) is responsible for paying invoices, based on information provided to their office by the tubs. Contact: (617) 495-9497
Office for Sponsored Programs (OSP) is responsible for providing guidance on and answering questions about A-21 classifications and unallowable expenses. Contact: (617) 496-4771
6/30/2013: Updated format, required material transactions be recorded on a quarterly basis (instead of annually).