This policy establishes when revenue must be recorded at the University. The University requires that revenues be recognized on the accrual basis, meaning when they are earned, not necessarily when payment is received. Revenues are generally earned when goods are shipped or services are performed.
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 revenues 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 revenue recognition.
- Accrual accounting rules require Harvard to record revenue when it is earned, meaning when the goods are shipped or the services are provided, NOT necessarily when payment is received. Revenue is considered earned when four criteria are met:
- Persuasive evidence of an arrangement (i.e., sufficient documentation) exists
- Delivery has occurred or services have been rendered
- The seller's price to the buyer is fixed or determinable (i.e., the price is not conditional upon a future event)
- Collectibility is reasonably assured (i.e., the customer is expected to pay for the goods or services).
- If the customer doesn’t pay for the goods/services immediately when provided, different types of balance sheet entries are required depending on when the customer pays for the goods/services relative to when Harvard ships the goods/performs the services: accounts/notes receivable asset, a deferred revenue liability, or a deposits paid liability. See Appendix A.
- Do not record income for internal transactions. Sales of goods or services to other University departments must not be recorded as income to the University, nor should they be recorded on the balance sheet (i.e., receivables and reserves, deferred revenue and deposits). See the University’s Internal Billing Transactions Policy.
- Record manual entries as needed for revenue type. Central offices process certain types of revenue, such as gifts and sponsored awards; see Appendix B for school/tub responsibilities by revenue type.
- Apply special accounting rules for certain types of revenue
- Record revenue offsets for items that reduce revenue, such as scholarships applied to student income, rebates, discounts, and adjustments for customer overpayments. Unless a specific object code exists to record income offsets, record these offsets in the same coding as initially used to record the related revenue.
- 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.
- Record balance sheet entries for items over reporting thresholds. At the end of each quarter, tubs must record manual entries for items not billed through the Central A/R system, if over these thresholds. Items prematurely recorded as revenue must be moved to the balance sheet by quarter-end if over these thresholds. 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.
- Maintain appropriate supporting documentation.
- The tubs must maintain documentation supporting revenue transactions that details the nature of the goods or services provided (or to be provided), such as account coding to credit, the date the goods or services were (or will be) provided, authorization from the customer ordering the goods or services, and customer contact information.
- Departments are encouraged to provide a copy of this documentation to the customer, and must retain the original documentation locally in accordance with the University's document retention policies.
- Review and reconcile balances. All tubs must reconcile and maintain supporting documentation for manually-recorded quarter-end accounts receivable, deferred revenue, and deposit liability balances. Investigate variances and take corrective action on a quarterly basis at minimum. In addition, tubs must review manually recorded accounts receivable for collectibility and bad debt reserves.
- Periodically evaluate manually recorded receivables for collectibility throughout the year. Pay particular attention to old outstanding balances; those older than 90 days are generally considered to be past due.
- Record allowances for doubtful accounts and write-offs. If the collectibility of a receivable is deemed to be uncertain, then the tub must establish a reserve for bad debt. See the Reserves for Bad Debts Policy.
- Reverse or reduce entries as needed. The unit that processes a manual accounts receivable, deferred revenue or deposit entry is responsible for reversing the entry (or applying the payment directly to the receivable) when payment is received, goods/services provided or the agreement period ends.
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 Central and manual accounts receivable, student receivables, institutional student loan notes receivable, and mortgage and educational loan notes receivable, as well as all related reserves 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 Receivable Office (Central A/R Office) is responsible for billing receivables through the Oracle accounts receivable (A/R) system, based on information provided to their office by the tubs. The Central A/R Office collects outstanding accounts receivable that have been billed through the Oracle A/R system, evaluates outstanding receivables for reserves, and identifies receivables requiring write-off. Contact: (617) 495-9497
Office for Sponsored Programs (OSP) is responsible for assisting the tubs in determining whether certain revenues represent gifts or awards and for processing cash receipts related to all sponsored awards and non-federal grants. Contact: (617) 496-4771
Recording Secretary’s Office (RSO) is responsible for assisting the tubs in determining whether gift revenue may be recognized and ensuring that it is appropriately recorded. Contact: (617) 495-1750
Student Receivables Office (SRO) is responsible for student billing and for processing student payments. Contact: (617) 495-4670
Student Loan Office (SLO) is responsible for student loan billing, recording and for processing student loan payments. Contact: (617) 495-0802
Mortgage and Educational Loan Office (MELO) is responsible for billing faculty and staff notes receivable for mortgage and educational loans and recording them in the GL, and for collecting payments on these loans. Contact: (617) 495-8858
6/30/2013: Updated format, clarified and condensed procedures, required material transactions be recorded on a quarterly basis (instead of annually).