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• FOOD AND NUTRITION SERVICE UNITED STATES DEPARTMENT OF AGRICULTURE SCHOOL FOOD SERVICE FINANCIAL MANAGEMENT HANDBOOK FOR UNIFORM ACCOUNTING PROPERlY c;- -:-HE I IRRARY AUG 221973 uNIVt:.n::.11 Y uF ''L"' 1 h L.tlr<ULINA AT GREENSBORO 0447A JULY 1973 A COMPLETE SYSTEM FNS-104 AS .. • SCHOOL FOOD SERVICE FINANCIAL MANAGEMENT HANDBOOK for UNIFORM ACCOUNTING ' Complete Sy:stem UNITED STATES DEPARTMENT OF AGRICULTURE FOOD AND NUTRITION SERVICE FNS-1V4 July 1973 .. • ' Chapter I ' II TABLE OF CONTENTS PRINCIPLES OF ACCOUNTING IN SCHOOL FOOD SERVICE ADMINISTRATION Introduction Accounting Terms and Principles What is Accounting? The Accounting Equation Basic Accounting Reports Balance Sheet Double Entry Bookkeeping The Income Statement Processing of Accounting Transactions Opening of the Books of Account Processing of Transactions Closing of Entries Additional Journals Additional Ledgers Fund Accounting as Applied to Food Service Operations Food Service as an Accounting Entity Features of Fund Accounting System Structure of Food Service Accounts Food Service Source Documents Food Service Books of Account Food Service Financial Reports Other Accounting Techniques Cost Accounting Encumbrance Accounting (Optional) Elements of the Accounting Cycle Summarized FOOD SERVICE ACCOUNTING FOR SMALL SCHOOL SYSTEMS Introduction Structure of Food Service Accounts i I.l I.l 1.2 1.2 1.3 1.5 1.5 1.6 1.6 !.8 1.8 1.13 !.17 !.18 .1.19 1.19 1.19 1.20 1.20 1.21 1.24 1.26 !.26 !.27 !.27 !.28 II.l II.l II.l Chapter III TABLE OF CONTENTS (CONT.) General Ledger Accounts Program Accounts Inventory Management Perpetual Inventory Periodic Inventory Inventory Valuation Ticket Valuation Procedures Ticket Valuation Account--End-of-Year Accounting Payroll Accounting Timekeeping Gross Pay Computation Payroll Deduction Computation Net Pay Computation Payroll Journal Entries Employee Payroll Record Completion ALLOCATION OF COSTS AND EXPENSES Concept of Full Costing Purpose of Full Costing Types of Cost Allocations General Allocation Procedures Recording Allocations to Programs Allocation Checklists Allocation to Locations Labor Purchased Services Equipment Depreciation All Other Costs Allocation of Costs to Programs General Cost of Food Sold Indirect Costs ii II.l II.lO II.ll II.l2 II.l3 II.l3 !!.13 II.l4 II .16 II.l6 II.l7 II.l7 II.l8 II.20 II.21 III.l III.l III.l III.l III.2 III.2 III.4 III.4 III.4 III.4 III.9 III.9 III.lO III.lO III.lO III.lO ... ' Chapter IV • • v TABLE OF CONTENTS (CONT.) OPERATING REPORTS Introduction Income Statement • Principles of Income Statement Preparing th~ Income Statement at the School Location Level Using the Income Statement The Consolidated Income Statement The Income Statement by Program The Balance Sheet Principles of the Balance Sheet Preparing the Balance Sheet Using the Balance Sheet The Consolidated Balance Sheet The Statement of Changes in Financial Position Preparing the Statement of Changes in Financial Position Other Operating Statistics Inventory Turnover Meals per Man-Hour Unallowable Costs EXPANDED CHART OF ACCOUNTS Purpose of the Expanded Chart of Accounts Use of General Ledger Accounts Use of Function Accounts Use of Program Accounts .Use of Location Accounts Definitions of General Ledger Accounts Definitions of Function Accounts Definitions of Program Accounts iii IV.l IV .1 IV.l IV.l IV.l IV. 7 IV.8 IV.8 IV.8 IV.8 IV .10 IV.l3 IV.l4 IV.l4 IV.l4 IV.l8 IV .18 IV.l9 IV .19 v .1 V.l v. 2 V.4 v .5 v. 5 V.8 V.20 V.21 Chapter VI VII VIII TABLE OF CONTENTS (CONT.) SCHOOL FOOD SERVICE REVENUE ACCOUNTING Introduction Recognition of Revenue from Sale of Meals Policy Source Documents Processing Flow for Cash Sales Illustrative Accounting Entries for Cash Sales Processing Flow for Ticket Sales Illustrative Accounting Entries for Ticket Sales Recognition and Liquidation of Receivables Policy Source Document Processing Flow for Recognition and Liquidation of Receivables Accounting Entries for Recognition and Liquidation of Receivables Posting to the General and Revenue Ledgers Closing Entries Sample Transactions PAYROLL PROCEDURES Introduction Documents Used Processing Flow for Payroll Transactions Use of Employee Time and Attendance Record Payroll Journal Entries General and Payroll Ledger Posting Employee Payroll Record Completion EXPENDITURE ACCOUNTING FOR FOOD, SUPPLIES, EQUIPMENT, AND SERVICES Introduction Ordering Goods or Services iv Page VI.l VI.l VI.2 VI.2 VI.2 VI.3 ~ VI.3 VI.S VI.6 VI.7 VI. 7 VI.7 VI.7 VI. 7 VI.8 VI.9 VI.9 VII .1 VII .1 VII .2 VII.2 VII.3 VII .4 t" VII.S VII .8 :. VIII .1 VIII.l VIII .1 • Chapter • tl TABLE OF CONTENTS (CONT.) Recommended Policy Source Documents Processing Flow for Ordering Goods or Services Receiving Outside Goods or Services Policy Receipt and Withdrawal Control Procedures Source Documents Processing Flow Accounting Entries Dispersing Cash or Liquidating School Food Service Liabilities Policy Source Documents Processing Flow Accounting Entries v VIII.l VIII. 2 VIII .2 VIII.3 VIII.3 VIII .3 VIII.4 VIII .4 VIII.S VIII. 9 VIII. 9 VIII. 9 VIII.9 VIII .10 Appendix A B c D E F G . H I J K L M N 0 p LIST OF APPENDIXES Cash Receipts and Participation Report-Specification for Completion of Report Reimbursement Voucher Worksheet-Specifications for Worksheet Completion Ticket Receipts Report-Specification for Completion of Report Cash Receipts Journal--Specification for Completion of Journal Journal Voucher--Specification fbr Completion of Voucher General Ledger Format--Specification for Completion of General Ledger Revenue Ledger--Specification for Completion of Ledger Notes Time and Attendance Record--Specification for Completion of Record Payroll Journal--Specification for Completion General Ledger Posting--Payroll Ledger Posting Employee Payroll Record--Specification for Completion of Record Purchases Journal--Specification for Completion of Vendor Ledger--Specifications Disbursements Journal--Specifications for Completion of General Ledger Posting Illustration-Explanation of Illustrative Entries Allocation Worksheet for Purchased Services, Indirect Labor, and Other Expenses-Specification for Use of vi Page A.l B.l c.l D.l E.l F.l G.l H.l I.l J.l K.l L.l M.l N.l II 0.1 P.l • Appendix Q R • LIST OF APPENDIXES (CONT.) Allocation Worksheet for Cost of Food Sold to Programs--Specification for Use of Cash Receipts and Disbursements Journal for Small School Districts--Specifications GLOSSARY INDEX vii Q.l R.l S.l T.l Number I.l 1.2 1.3 1.4 I.S 1.6 1.7 1.8 II.l II.2 II.3 III.l III.2 III.3 III.4 IV.l IV.2 IV.3 IV.4 Iv.s IV.6 v .1 v .2 v .3 v.4 v .s LIST OF FIGURES Hierarchy of School District Subsystems Morristown School Food Service Operations Balance_§h~et as of pecember 31, 19XX Morristown School Income Statement For The Period Ending December 31, 19XX The Journal Voucher Posting From A Journal to The General Ledger Accounts Examples of Entries to The General Ledger Transaction Posting to The General Ledger Example of Closing Entries The Journal Voucher General Ledger Accoun.ts for The Small School District Program Accounts Tax Deductions Table School Food Services Allocation Processes Checklist For Allocating Costs to Programs Checklist For Allocating Costs to Locations Allocation of Cost of Food Sold to Pro-gram Accounts Income Statement for January 1972 Cost of Food Sold Worksheets (Periodic Inventory Method) Worksheet for Purchased Services Program Income Statement for January 1972 Type A Lunch Program Balance Sheet, As Of January 31, 1972 Statement of Changes in Financial Position For January 1972 General Ledger Accounts Function Accounts Program Accounts Location Accounts General Ledger-Program Account Table viii I.l I.S I.7 I.lO 1.12 1.14 1.15 1.17 II.2 II.ll II.l9 III.3 III.5 III.6 III.ll IV.3 IV .6 IV.6 IV.9 IV .11 IV .15 v .3 v.4 v .5 V.6 v.22 Number VIII.l VIII.2 • LIST OF FIGURES (CONT.) Perpetual Method for Recording Inventory Transactions The Physical Inventory Method ix VIII.6 VIII. 7 FOREWORD PURPOSE OF THE HANDBOOK This handbook is intended to assist the School Food Authority and those responsible for recording and reporting on the various financial activities of a school food service fund. Without an adequate accounting system to capture the financial history and present the financial status of a school food service, food service management would be reduced to memory and guesswork. The handbook describes uniform accounting systems suitable for use by all school food authorities. It may be used in whole or in part depending upon the accounting system currently in use and its ability to achieve the results described in this handbook. CONTENT OF THE HANDBOOK The handbook contains the following material, oriented toward the average-to-larger school systems: • an introduction to the principle of accounting. • an overview of the school food service fund accounting system. charts and explanations of the different types of accounts used in the system. procedures for preparing and using reports • • definitions of terms used. CRITERIA FOR THE SYSTEM The school food service accounting system described in this handbook has been designed to meet the following criteria: 1. The system must be as simple as possible, but yet must provide all required information according to generally accepted accounting principles. 2. The system must provide all types of internal information, including information for cafeteria, school, and school district managers, and external information for all other interested parties, including local, state, and federal governmental officials. X • • 3. Although it should be simple, the accounting system must demand accuracy and internal control. 4. The system must be consistent and uniform although it crosses cafeteria and district lines. Only in this manner can local, state, and federal officials make valid comparisons between entities over long periods of time. To meet these criteria, the system contains the following features: • accrual accounting double entry bookkeeping • • a set of procedures for: • recording revenue; • recording expenditures; and • allocating costs. To provide the basis for implementation of the system, this handbook specifies a set of journals and ledgers, including subsidiary ledgers, and a chart of accounts . xi • • CHAPTER I PRINCIPLES OF ACCOUNTING IN SCHOOL FOOD SERVICE ADMINISTRATION INTRODUCTION Generally accepted accounting principles apply to all enterprises, whether large corporations or small enterprises, such as school cafeterias. No matter what their size, cafeterias own assets, owe debts, earn revenue, and incur costs. They are required to report these transactions, not only to internal management, but also to a wide range of external parties, including local, state, and Federal Government agencies, school boards and elected legislative bodies, the public (i.e., taxpayers), and the various private enterprises which may extend credit to a food service fund. Although a school food service fund is a self-contained entity, it is also a system within many other systems. It must be responsive to the parent school district, county administration, and the state and Federal Governments and, therefore, is somewhat constrained by its .relative position within these systems. This "business" or fund is shown diagrammatically in Figure I. 1 FIGURE I.l HIERARCHY OF SCHOOL DISTRICT SUBSYSTEMS General Fund State Government County Government School or School District Funds Food· Service Fund I.l Debt Fund(s) Given the natural constraints.imposed by this hierarchy, school food service operations must have effective management and financial reporting. As a m1n1mum, an accounting system for a school food service fund should perform the following functions: • maintain accurate records of all financial transactions; • allow food service management and school district administrators to plan effectively; • enable food service management to submit reports on financial operations to local, state, and federal agencies; • ensure ' that costs are properly applied to the school food service resources; and • ensure that resources are used only for their designated purposes. This manual describes a school food service accounting system which fulfills those needs. Since, in many of these school food service operations, personnel with little or no accounting background are required to have a comprehensive understanding of the entire operation, some basic knowledge of accounting terminology and principles will be helpful to them. To assist school personnel in understanding the debit-credit structure, Chapter I presents the basic accounting vocabulary, introduces the most common reports used in accounting, and shows how accounting information applies to food service financial operations. ACCOUNTING TERMS AND PRINCIPLES What is Accounting? Accounting is the recording, summar1z1ng, reviewing and interpreting of business transactions and their effects on the affairs and activities of an organizational unit. Accounting for any enterprise consists of the following aspects: • system design - designing internal controls and recording methods for a particular entity (in this case, the system designed for school food service fund accounting); , bookkeeping - keeping records of the entity's financial transactions; I.1 • ~I • auditing - testing the accuracy and propriety of these records; and analysis and reporting - making known to others the information contained in financial records and its significance. This handbook introduces a bookkeeping and reporting system for use by a school food service operating entity. The auditing function will normally be carried out by the school district, by other governmental agencies, or by independent accounting firms. The Accounting Equation An individual's financial position is made up of the valuable possessions or resources owned by him, on the one hand, counterbalanced by his debts, on the other. The difference between the dollar measure of his resources and the dollar measure of his debts is commonly called "equity" or "net worth." (Another synonym for equity used more normally in school accounting is "fund balance.") In equation form, the principle of financial accounting is stated: ASSETS minus EQUITY (what is owned) LIABILITIES equals (what is owed) (net worth or fund balance) Assets A food service's assets include all items, both tangible and intangible, of value to the operation which are currently owned by the food service fund, are being used or are available for future use, and are measurable in money. Most assets are classified as either "current" or "fixed." Current Assets A current asset is cash or any item that can be readily converted into cash. The following common food service items are examples of current assets: • cash received from the sale of cafeteria meals; • supplies in the cafeteria stockroom; • a check received from the advance sale of lunch tickets which is awaiting deposit in a bank; and • accounts receivable, such as money due the school food service fund from the state. I.3 Fixed Assets A fixed asset is an item of lasting value (usually more than one year), which is not likely to be sold for cash, is owned by the school district, and is assigned as the property of a school food service fund. An example of a fixed asset is equipment used for processing food. Other Assets "Other assets" is a balance sheet term for minor assets not classifiable under current asset or fixed asset headings. These assets include prepaid taxes, insurance, and deferred expenses. Liabilities Liabilities are any debts the school food service owes. Liabilities are classified as either "current" or "long term." Current Liabilities Current liabilities can be defined as those debts which will come due for payment within a year. The following items are two examples of current liabilities: (1) an amount owed for food purchased; and (2) income tax withholdings from salaries of employees which are not yet paid to the government. Long-Term Liabilities A long-term liability is a debt which the school district is not likely to pay within a year. For example, the amounts of mortgages for equipment which are due beyond the current accounting year are considered to be long-term liabilities. Funds The assets, liabilities, and fund balance (or net worth) of each of a school district's "businesses" constitutes a fund. Stated another way, a fund is an independent accounting entity with its own assets, liabilities, and fund balance. Generally, funds are established to account for the financing of specific activities of a school district's operations. The school's food service operation is one of these specific activities. A separate fund is required for school food service operations to give financial control and provide a clear presentation of revenues and expenditures. 1.4 • BASIC ACCOUNTING REPORTS Balance Sheet The foregoing basic accounting terms and principles are essential to one of the most fundamental accounting reports, the balance sheet. The balance sheet (or position statement, as it is also known) is one of the major reports recommended for use in the analysis of the food service operations. The balance sheet itself clearly reflects the structure of the accounting mechanism and, for this reason, is presented at this point as a basis for understanding the accountant's debit and credit language. The purpose of the balance sheet is to show the financial position of an organization at a given point in time. Basically, it consists of reporting the dollar amount of assets, usually on the left-hand side of the balance sheet, and the dollar amount of existing debts on the right-hand side along with the fund balance. Thus, the balance sheet actually represents in report form the accounting equation developed earlier. The report also contains all of the basic accounting elements of assets and liabilities which were previously discussed. Figure I.2 is a condensed balance sheet depicting the skeletal structure of the balance sheet. FIGURE I.2 MORRISTOWN SCHOOL FOOD SERVICE OPERATIONS BALANCE SHEET AS OF DECEMBER 31, 19XX Assets Liabilities and Fund Balance Current $30,000 Liabilities Fixed 60,000 Current $20,000 Other 10,000 Long-term 152000 $35,000 Fund Balance 65,000 $100,000 $1002000 I.5 Double Entry Bookkeeping The balance sheet illustrates the basic manner by which the business transactions of the food service operation are recorded. The method is called "double entry bookkeeping" and is one of the principles of good accounting. In double entry bookkeeping, transactions are recorded (posted) in one type of book, called a journal, and subsequently are posted again in another book called the general ledger, which contains accounts (descriptive headings). A journal is the book in which each individual financial transaction is recorded in detail. The general ledger contains the basic group of accounts, usually with one page alloted for each aecount. A listing of all the accounts in the general ledger is called the chart of accounts. An illustration of each of thes~ books is included in the Appendices with examples of how transactions are recorded. The principles of double entry bookkeeping, which underlie proper accounting for all transactions, have been explained in terms of journals, the general ledger, and the balance sheet. The same principles apply to recording and accounting for those accounts from which an income statement is derived. The Income Statement The income statement is a report which has long been unique to food service accounting. Few other school funds provide this financial statement as a part of their usual reporting or accounting structure because the school food service is run more like a commercial enterprise or a business than are other school funds. The profit (excess of revenue over costs) or the loss (excess of costs over revenue) of the school food service is measured and reported using the income statement concept. The income statement is often referred to as the operatin,g statement, and it should portray the ongoing activities of a food service operation. It should show the relationship between expenses and sales for a given period and give some insight into the operating efficiency of the service or food preparation unit. The major report components of the income statement are revenue, expenses, and net income (the difference between revenue and expenses). Figure I.3 is an example of an income statement. More detailed forms of this report will be discussed in Chapter IV and the appendices. 1.6 • .. Revenue FIGURE I.3 MORRISTOWN SCHOOL INCOME STATEMENT FOR THE PERIOD ENDING DECEMBER 31, 19XX Revenue Less: Sale of Lunches Federal Reimbursement State Reimbursement Expenses Food and Labor Costs Operating Expenses Equals: Net income for the month of December, 19XX $5,500 500 200 $6,200 $3,100 2,600 $5,700 Income revenues for a school cafeteria are the total gross increase in fund balance before costs and expenses are deducted. Sales revenue is the total amount collectible from customers for the sale of goods and services during an accounting period. Revenue is recorded when a sale is made or when a service is rendered, regardless of when cash changes hands. Such revenue is often referred to as accrued revenue. In accrual accounting, all revenues and expenses are recorded when they are earned or incurred, whether payment precedes, is simultaneous with, or follows in time. Therefore, revenue must be contrasted with the inflow of cash. Cash may be received from cash sales, from advance (ticket) sales, or from the payment of accounts receivable and, therefore, may be greater or less than revenues earned during any given period • Expense An expense results when an item of value, i.e., cash or assets (merchandise or machinery), is given up intentionally to produce revenue. Expenses may also be viewed as amounts that are subtracted from revenues on the income statement to obtain net income. They must be recorded and reported as subtractions from the revenues of the period to which they pertain. I.7 This is why food inventory, for instance, should be "expensed" as it is used--not when it is purchased, and why food processing equipment and special food service costs should be spread, or depreciated, over the useful life of such equipment. It would be wrong to absorb the full cost of a newly purchased baking oven in the month in which it was purchased or when cash was remitted for the purchase. The cost should be spread over the periods of expected use; for example, each month for a period of several years. Food and supply inventories should be treated in a similar manner; they become "expenses" when used, rather than when purchased. Again, the concept of accrual accounting is to be applied. Net Income In the simplest terms, income revenue minus expenses equals net income (or net loss, if expenses are greater than revenue). Stated in terms relative to the income statement and balance sheet, net income is the earnings which food service management has produced for a specified period of time. Net income (or loss) increases (or decreases) the fund balance on the balance sheet for an accounting period. PROCESSING OF ACCOUNTING TRANSACTIONS Thus far, two fundamental accounting reports (the balance sheet and the income statement) have been defined and discussed in terms of the accounting principles relating to them. How accounting works from a bookkeeping standpoint has also been briefly discussed in terms of the books of account (the journals and the general ledger). Accounting transactions can now be examined in detail to see how they are processed and to see the relationship of debits and credits to assets, liabilities, and fund balance. A sample set of financial books is presented below. Three types of entries (transactions) will be demonstrated: (1) entries to open, or establish, the books of account; (2) entries to show transactions as they occur during the accounting period; and (3) entries to close the books for an accounting period. The brief examples discussed below are introductory and are meant to demonstrate the accounting principles already explained. More detailed entries will be illustrated in the specific chapters dealing with detailed food service operating procedures. Oeening of the Books of Account It is assumed that the school year has just started and that it will be necessary to establish the various asset, liability, and fund 1.8 .. ) • -4, balance accounts. A hypothetical food service fund has the following assets and liabilities at this time: Assets Liabilities and Fund Balance Current Assets Current Liabilities Cash in Bank $20,000 Accounts Payable $ 8,500 Change Funds 2,000 Salaries Payable 15 1000 Due from Federal Total Current Liabilities $23,500 Government 8,000 Due from State Long Term Liabilities none Government 3,000 Fund Balance 9 2500 Fixed Assets Other Assets Total Assets none none $332000 Total Liabilities and Fund Balance The total liabilities are subtracted from the total assets, and the difference ($9,500) is the fund balance. With this information, it is possible to prepare an opening entry in a general journal from a journal voucher and, subsequently, in the general ledger. The sequence and explanation of required events follows • 1 To simplify the explanation, no fixed assets or long-term liabilities have been presented in this example. I.9 $33,000 Recording in the Journal The beginning asset, liability, and fund balance accounts are recorded. Figure 1.4 shows the balance recorded on a journal voucher. FIGURE 1.4 THE JOURNAL VOUCHER Approved by: _____________ _ Date Posted: ----------------- Posted by: _________ _ Number July 1, 19XX Account Title and Explanation Cash in Bank Change Funds Due from Federal Government Due from State Government Accounts Payable Salaries Payable Fund Balance to record assets, liabilities and fund balance as of July 1, 19XX Account Deb it No. lOlOD 1030D 1130D 1131D 2010C 2020C 2710C Amount 20,000 2,000 8,000 3,000 Credit Amount 8,500 15,000 9,500 Recording the opening entries in the journal from the journal voucher is a straightforward procedure as follows: • The date all opening entries are made is posted. • Those accounts which will be entered as debit amounts are written at the left margin in the "Account Title and Explanation" block; the accounts to be credited are indented in this block • • A block entitled "Post Ref." (posting reference) on the journal is used to record the individual general ledger account to which each journal line entry is to be posted (entered) • • Debit and credit amounts are posted in the appropriate column--assets are entered in the debit column, and liabilities and fund balance are entered in the credit column. I.lO ., The above journal voucher introduces the accounting tenns "debit" and "credit." The following chart is provided to guide the reader who is unfamiliar with debits and credits and their use. When Nonnal Account Debited Credited Balance Asset Account Balances increase decrease debit Liability Account Balances decrease increase credit Fund Account Balances decrease increase credit Income Account Balances decrease increase credit Cost and· Expense Account Balances increase decrease debit The fundamental rule that "debits equal credits" may never be violated no matter how complex a transaction is. The general ledger is so constructed that each account will have two sides (debit side and credit side) with debits recorded on one side and credits on the other. As shown above, the nature of the account detennines the side to be used for increases or decreases. Note that the side increased is also the side of the normal account balance. Posting to the General Ledger After the journal has been posted, the entries are posted to the general ledger, as illustrated in Figure 1.5.* Note that each account is maintained on a separate page in the general ledger. The following cross-reference infonnation is posted in the general ledger: • Date - the same date that appears in the journal; * Any general ledger account numbering system can be used for identifying general ledger accounts. The numbering system usually depends upon what is used in a particular school system or within a district. The numbering system used in this manual is for illustrative purposes only. I.ll ...... N"" " / / / Date July 1, 19XX _,,- THE JOURNAL (EXAMPLES OF ENTRIES) -- --- -- Account Title and Explanation Cash in Bank Change Funds Due from Federal Government Due from State Government Accounts Payable Salaries Payable Fund Balance to record assets, liabilities, and fund balance as of July 1, 19XX ._ ~ .FIGURE !.5 POSTING FROM A JOURNAL TO THE GENERAL LEDGER ACCOUNTS ;/ _./ / I -1 ........ _./ p - Post Debit Credit Ref. Amount Amount - 1 010 20,00o 1030 2,000 ~--- - 1130 8,000 --- "1131- 3,000 r--- 201D 8 ,5ou- 2020 15,000 2710 9,500 i General Ledger Accounts _, Account #1010 Title - Cash in Bank .-,. Date Description Ref. July 1 Balance Carried Forward Jl - Account #1030 Title ----t:h-anQ; Funds Jul:_ 1 k - -81rtance C::.ried Forwardl Jl I. Account #1130 Title - Due from Fed. Govt. -.,.July 1 I Balance Carried Forward - ---- - - Account # 1131 Title July 1 Balance Carried Forward Account #2010 Title - Accounts July 1 Balance Carried Forward Account #2020 Title July 1 Balance Carried Account #2710 Title - Fund Balance 1 July 1 1 Balance Carried Forward I Jl I • ·- ,. Page 1 I Debit Credit Amount Amount ! 20,DOO I Page 2 2,000 T Page 3 Page 4 Page i 8,500 Page 6 15,000 Page 7 I 9,500 • Description - a brief description of the purpose of the entry when appropriate; and • Ref - the journal page on which the entry was originally made. Ledger debit and credit amounts must match the journal debit and credit amounts. When each line of the opening entry in the journal has been posted to the general ledger, the opening procedure is completed, and the books of account are ready to receive the first month's financial transactions. Processing of Transactions To illustrate the steps involved in processing transactions, it is assumed that the following financial transactions are made (refer to Figures 1.6 and 1.7 to follow the transactions): 1. On September 1, 19XX, $150 worth of food is purchased for serving on September 2, 19XX. 2. On September 2, 19XX, $200 in cash is received from the cafeteria cashier from the sale of meals and deposited in the bank, and all the food inventory is used for serving. 3. On September 3, 19XX, the Federal Government reimburses the school food service fund for $1,000. 4. On September 4, 19XX, the State Government reimburses the school food service fund for $750. Ledger accounts are used to accumulate revenues and expenditures during the month and are posted to the general ledger either in total or by individual amounts. At the end of the month, the difference between revenues and expenditures is calculated, and this difference is computed to the fund balance account. Transac-tion postin'g to a journal during the month is as described below. 1.13 Date July 1, 19:XX Sept. 1, 19XX Sept. 2, 19XX Sept. 2, 19XX Sept. 3, 19XX Sept. 4, 19:XX FIGURE I.6 EXAMPLES OF ENTRIES TO THE GENERAL LEDGER Account Title and Explanation Cash in Bank Change Funds Due from Federal Government Due from State Government Accounts Payable Salaries Payable Fund Balance to record assets, liabili-ties and fund balance as of July 1, 19XX. Food Inventory Accounts Payable Cash in Bank Sales to Pupils Food Costs Food Inventory Cash in Bank Due from Federal Govern-ment Cash in Bank Due from State Government Page 1 Post Debit Credit ~ Amount $ Amount lOlOD 20,000 1030D 2,000 1130D .8 ,000 1131D 3,000 2010C 8,500 2020C 15,000 2710C 9,500 1210D 150 2010C 150 lOlOD 200 3010C 200 4600D 150 1210C 150 lOlOD 1,000 1130C 1,000 lOlOD 750 1131C 750 As can be seen from Figure I.6, transaction posting is performed by the same method as that used to make the opening journal entries. $ The subsequent general ledger posting would appear as shown in Figure I.7. I.l4 !"' .. • FIGURE I. 7 TRANSACTION POSTING TO THE GENERAL LEDGER • Account II 1010 Title-Cash in Bank Page 1 Debit Credit Date Description Ref. Amount Amount Balance July 1 Balance carried forward Jl 20,000 Sept. 2 Revenue from Sales to Pupils Jl 200 ., Sept. 3 Reimbursement from Federal Government Jl 1,000 ·Sept. 4 Reimbursement from State Government J1 750 D 21,950 Account if .l.Q1Q Title-Change Funds Page ..?_ July 1 Balance carried forward Jl 2,000 D 2,000 Account II -113-0 Title-Due from Federal Government Page -3 July 1 Balance carried forward Jl 8,000 Sept. 3 Reimbursement received Jl 1,000 D 7,000 Account II 1131 Title-Due from State Government Page -4 July 1 Balance carried forward Jl 3,000 Sept. 4 Reimbursement received Jl 750 D 2,250 Account II 1210 Title-lnventor:l::: Food Page 2. Sept. 1 Puchases Jl 150 Sept. 2 Consumed for Sept. 2 serving 150 -0- Account II 2010 Title-Accounts Payable Page -6 July 1 Balance forward 8,500 Sept. 1 Food purchases Jl 150 c 8,650 Account II 2020 Title-Salaries Pa:l:::able Page J... July 1 Balance forward 15,000 c 15,000 Account II -271-0 Title-Fund Balance Page J... July 1 Balance forward 9,500 c 9,500 Account II 3010 Title-Sales to PuEils Page ~ Sept. 2 Revenue received Jl 200 c 200 Account II 4600 Title-Food Costs Page 9 Sept. 2 From inventory 150 D 150 I.15 Transactions involving the receipt of cash from the State and Federal Governments included increasing one current asset (cash) and decreasing another (accounts receivable). No revenue accounts were affected by either transaction, ..because the revenue was recognized in a prior accounting period, probably when a reimbursement claim was submitted by the school district. The accounts receivable and revenue accounts were increased at that time. This procedure illustrates the accrual method of accounting. Cash was not recognized as revenue when it was received (in these two instances, on September 3 and September 4). Revenue was recognized when an amount became due to the food service fund. In contrast, the September 2 transaction shows revenue being recorded on the day cash was rec~ived from pupils and deposited in the bank. In this case, the cash was received when the income was earned. Another example of how accrual accounting works is that the food cost is recognized when consumed even though cash has not been expended. Ttial Balance A trial balance should be prepared at the end of each month (or other accounting period) to expose bookkeeping errors and to aid in preparing financial statements. The trial balance is merely a listing of all the ledger account balances in account order. It is called a trial balance because it is the first attempt after the ledger is posted to prove that the debits and credits balance (i.e., that they equal each other). The following is a trial balance of the transactions posted to the general ledger in Figure I.7. Trial Balance Account Number Description Debit Credit 1010 Cash in Bank $21,950 1020 Change Funds - 2,000 1130 Due from Federal Government 7 ,ooo 1131 Due from State Government 2 '25-0 1210 Inventory Food -0- 2010 Accounts Payable $ 8,650 2020 Salaries Payable 15,000 2710 Fund Balance 9,500 3010 Sales to Pupils 200 4600 Food Costs 150 $33,350 $331350 I.l6 ~, • Closing of Entries At the end of each accounting period, the net income or loss is transferred informally to the fund balance account when the income statement and balance sheet are prepared. However, at the end of an accounting year, the transfer of net income or loss is made formally on a journal voucher of closing entries. The closing entries are prepared by making an entry to each of the income and expense accounts to bring each account balance to zero. The balance amount (which is the difference between the debits and credits necessary to bring these amounts to zero) is debited or credited to the fund balance account. For the accounts shown in the trial balance above, the journal voucher would include the entries shown in Figure I.8. Approved by: Date Posted: Date Sept. 30 FIGURE I. 8 EXAMPLE OF CLOSING ENTRIES THE JOURNAL VOUCHER Posted by: Account Title and Explanation Sales to Pupils Food Costs Fund Balance 1.17 Account No. 3010 Number ---- Deb it Credit Amount Amount 200 150 so After the postings to the above entries are made, the sales to pupils and the food costs accounts will now have a zero balance, and the fund balance account will be $9, 550.. This fund balance amount of $9,550 and the other accounts in the trial balance will make up the opening entries for the next accounting period. Remember, however, that formal entries by means of a journal voucher are made only at the end of an accounting year. This example shows only a few entries for one month and, in practical circumstances, would not be formally closed. Additional Journals Thus far, the accounting principles and illustrations on the use and application of journals and the general ledger have involved only one journal, the general journal. This has been done to facilitate the explanation of how these two books of account relate to each other and how transactions are posted to each type of account book. It is recommended, however, ~hat in addition to the general journal, several different journals be used to record specific transaction types which recur frequently. These additional journals are described below: • Purchase Journal - used to record the expenses and liabilities associated with purchases of outside goods and services; • Disbursements Journal - essentially used as a checkbook to record disbursements from the operating bank account; • Payroll Journal - used to record all payroll related transactions; which are deposited in the bank account; and • Receipts Journal - used to record all receipts which are deposited in the bank account. Posting from these journals is on a monthly basis; when posting to the general ledger, the total debits and credits to eac~ account are posted from the journals. When using totals from mul:~ple transaction journals, the date recorded in the general ledger ~s the last day of the month. In some instances it may be advisable to combine the disbursements and receipts journal into one journal called the cash receipts and dis. bursements journal. These journals should be combined only when it will not result in a clutter of information. 1.18 • I • Additional Ledgers The illustrations _thus far have assumed only a single ledger, the general ledger. However, it is recommended that three subsidiary ledgers be maintained in addition to the general ledger. These subsidiary ledgers, discussed below, give detail not available in the general ledger • • Revenue Ledger - used to record revenues at the program account level; • Payroll Ledger - used to record labor costs at both the program and function levels; and • Vendor Ledger - used to record purchases, accounts payable, and payments by vendor. All transactions posted to posted to the general ledger. gers should occur at the same posting to the general ledger the subsidiary ledgers also must be Posting to the payroll and vendor ledtime journal entries are made, while and revenue ledger may be postponed un-til the end of a month. These procedures assume that a school food service fund consists solely of a single school cafeteria. For all funds having multiple cafeterias and central administration, a separate set of accounts should be maintained for each location. FUND ACCOUNTING AS APPLIED TO FOOD SERVICE OPERATIONS The school food service accounting system described in this manual uses fund accounting as one technique for achieving effective management and financial reporting. Recognizing that most food service financial procedures, including accounting, are performed at both the school and school district levels, the following overview of fund accounting will serve as a guide for food service administrators in identifying where these individual procedures are to be performed (i.e., at the individual school location or at a school district's accounting office). Food Service as an Accounting Entity As stated earlier, a fund is an independent accounting entity with its own assets, liabilities, and fund balance. It is established to account for financing specific activities of a school district's operations. A separate fund is required for school food service operations to give financial control and a clear presentation of revenues and expenditures. 1.19 The school food service fund is an accounting entity within the local education agency's total accounting system and has a separate self-balancing set of accounts, as if the school food service fund were a separate enterprise. For accounting purposes, transactions among the various other school funds are similar to transactions among separate enterprises. Features of Fund Accounting System Some of the important characteristics of this system of fund accounting include: • Accrual Basis Fund Accounting - Under this system, revenue is recognized when it is earned (regardless of when cash is received), and expenses are recognized when purchased goods are used and/or services are performed (regardless of when cash is paid). Accrual accounting for expenditures is maintained on a continuous basis; that is, expenses are accrued and entered into the books currently throughout the month, as food and supplies are used. Similarly, accrual accounting for revenues is maintained on a continuous basis. • Simplified Manual Bookkeeping Techniques - All procedures are specified for non-automated food service facilities; however, the basic systems can be adapted or ex.panded into fully automated data processing systems • • Periodic Reporting of Financial Activities - A group of reports necessary to fulfill management information needs, as well as external reports to satisfy the needs of State and Federal Governments, are provided. • Standardized Accounts - Accounts are defined fully to ensure consistency in reporting by all schools participating in food service programs • • Program and Function Accounting - This type of accounting determines meal costs by type of meal served and measures the efficiency of various activities within a food service operation. Structure of Food Service Accounts To operate a fund accounting system as described above, it is necessary to have an appropriate, consistent scheme for classifying transactions. The following classifications are used to account for food service fund assets, l'iabilities, revenues, and expenses: I.20 • ,., • • function (optional); • program; • school location; and • general ledger account. Function classifications identify areas of cost responsibilities for management information at the school level. Program classifications identify types of meals served and are applied only to revenue and expense items. School location classifications identify individual cafeterias, so that reimbursement and management information may be prepared for each. General ledger account classifications identify expense, revenue, asset, liability, and fund balance accounts. Each transaction processed through the system must be identified by at least one school location account (one for each entry of the transaction--debit and credit). Transactions affecting revenues must also be identified by an appropriate program account, while expenditure transactions must be identified by program and function accounts. A listing and definitions of all accounts appear in Chapter II. Food Service Source Documents Effective fiscal control in school cafeteria accounting systems depends upon the use of properly executed and approved source documents to initiate financial transactions. Source documents record the details behind individual transactions, thus providing information necessary for current financial decision making, as well as for historical traceability. Source documents permit a means for determining responsibility for individual transactions and also permit a system of checks and balances among food service employees. Although it is important that source documents be complete, they should not be cumbersome; moreover, only "need to know" information should be collected on these documents, i.e., information which is necessary for state and federal reimbursement or for management decisions. The source documents required for a basic food service financial management system are listed and described below. Illustrations of such source documents appear in the appendixes. Employee Time and Attendance Sheet The employee time and attendance sheet is used to record labor hours and labor costs. The form is used by each employee to record the amount of time worked on each activity during a bi-weekly pay period. Each employee should record the number of hours worked in each program, or type of meal (e.g., type A lunch). The programs are eXplained in Chapter II. I. 21 Time and attendance should be recorded in units to the nearest quarter hour; total hours for an entire pay period should be recorded, in addition to the number of overtime hours worked each day during the pay period. Purchase Requisition A departmental manager, or other authorized person, initiates the purchase requisition (request for purchase) which requests the purchasing agent or department to buy specified goods. Two to five copies of the purchase requisition should be prepared, depending upon the system's informational needs. For example, one copy each should be prepared for the accounting and the budgeting divisions, so that encumbrances can be made against fund or budget accounts. Based on the purchase requisition, a purchase order will be prepared. Purchase Order The use of purchase orders is important in maintaining budgetary control over a school district's food expenditures and in maintaining visibility for future financial requirements. Purchase orders record items or services being requested, their cost, the name of the vendor being used, and the date of delivery or performance. In addition, the purchase order may indicate the reason for the order and the appropriate expense account. The order should be signed by the person initiat~ ing it. A duplicate copy of the form or a stub at the bottom of the purchase order form (the receiving stub) may be used by the purchaser to record either partial or final receipt of goods or services which had been ordered. The receiving stub is transmitted to the accounting department to verify the receipt of goods or services before paying the vendor. Vendor Invoice This source document, the vendor invoice, is received by school accounting or food service operation directors from outside vendors and is used to document the delivery and cost of outside goods and services. Vendor invoices record many of the cafeteria expenses and serve as the mechanism for authorizing payment of those liabilities. No illustration of this source document is given since its form will vary among different vendors. However, the procedures for processing, marking, and storing vendor invoices are standardized, regardless of the invoice's appearance. These procedures are explained in detail in a later chapter of this manual. Normally, the vendor invoice includes the date the invoice was received, verification of actual receipt or performance of referenced goods or services, expense accounts charged or paid, and the check number used for payment. 1.22 • • • • Purchase Listing The purchase listing is a recapitulation of goods and services received by each school food service location. All items ordered and received to be authorized for payment are shown on the purchase listing. When used, it is usually prepared by the cafeteria manager or the employee in charge of receiving goods at a storage location. The purchase listing verifies the receipt of goods so that payment may be made. It also may be used to collect information concerning goods purchased individually by schools rather than by a central purchasing function. Payment Voucher Payment vouchers are internally prepared source documents which are used for authorizing payments in cases where vendor invoices (or other appropriate source documents, such as time and attendance sheets or petty cash slips) are not available. Primarily, they are used when invoices are not received from vendors or creditors, although they may be required for all disbursements at the discretion of management. The information in the payment voucher is similar to that on vendor invoices; the payment voucher also contains a description of the item delivered or service performed. Petty Cash Slip Petty cash slips are used to record all payments from the petty cash fund for infrequent small expenditures made by employees on behalf of the school food service fund. A petty cash slip is prepared and submitted when a disbursement is made. Petty cash disbursements may be made as reimbursements for documented expenditures or as advances, in which case the amount disbursed is subject to later adjustment. The petty cash slips, which are accumulated and summarized on a petty cash voucher by the petty cash custodian over a period of time, also serve as the basis for replenishing the petty cash fund. Journal Vouchers Journal vouchers support certain low-volume transactions which are not handled through normal accounting procedures. Adjusting entries, such as month-end accruals and corrections of prior entries, do not lend themselves to documentation using standardized forms. In these cases, the journal voucher is used to record and classify the transaction and to accumulate any relevant supporting information. An explanation of the transaction can be written directly on the journal voucher; or other documents, such as worksheets, can be attached to the journal voucher. I.23 Each journal entry must be a complete, self-balanced entry within an accounting entity. Journal entries are identified by unique locations using appropriate account numbers. The journal entries are posted directly to the general ledger from the approved journal vouchers. After posting, the journal vouchers are inserted sequentially by number into a binder which serves as a general journal file. Cash Receipts Slip The cash receipts slip records all cafeteria cash receipts. Each cash receipt slip indicates the purpose of the receipt, the source of the receipt, and the form of the receipt (i.e., check, cash, or money order). Daily cash receipts are summarized on the cash receipts summary form, or other food service report form, which serves as the basis for making entries into the cash receipts journal and for preparing bank deposit slips for the treasurer's account. Food Service Report The food service report is used by employees in the food service line (usually cashiers) to account for the number and type of meals served. These figures are posted daily and totaled at the end of each accounting period (usually at the end of a calendar month) to prepare a participation report. Figures are accumulated on the number of pupil and adult meals served and on the number of full price, free, and reduced price meals (breakfasts and type A lunches), special milk servings (in terms of half-pints), and ala carte meals. Cash Receipts and Daily Participation Report This report is a consolidation of individual school worksheets at the district level to report reimbursement statistics to the State or Federal Governments. Food Service Books of Account The books of account for the school food service fund can be grouped into two categories: • books of original entry - the journals which are used to record individual transactions as they occur; and • books of final entry - the ledgers which are used to summarize the transactions recorded in the journals. 1.24 • • Disbursements Journal The disbursements journal records all disbursements made from the operating bank account. For payment of outside purchased goods and services, the normal entry in the fund's books is a debit to accounts payable (reducing the liability) and a credit to cash (reducing the balance in the operating bank account). The disbursement journal also is used to record all other disbursements from the operating bank account, including those transactions not previously credited to accounts payable in the purchases journal. Examples of these types of transactions include payment of travel advances, travel expenses, petty cash reimbursement, etc. Payroll Journal The payroll journal records all disbursements made from the payroll bank account, including the following: • net pay to each employee; • payroll deductions for each employee; • accrual and subsequent payment of employer payroll taxes and contributions to fringe benefits; • appropriate expense distributions; and • interfund liabilities. Receipts Journal The receipts journal records food service receipts which are deposited in the bank account. The typical entry in the receipts journal debits cash (to increase the balance in the treasurer's bank account) and credits an appropriate revenue account(s). Revenue Ledger The revenue ledger accumulates revenue accounts, subdivided by programs (i.e., type of meal served). The sum of revenue by programs must be reconciled monthly to revenue shown in the general ledger. Payroll Ledger The payroll ledger accumulates all salaries and employee benefit accounts, subdivided by program (i.e., type of meal served). The sum of costs by program and the individual employee records must be reconciled to total payroll amounts. 1.25 Food Service Financial Reports Three basic reports are important for evaluation and control of food service operations: (1) the income and expense (operating) statement; (2) the balance sheet (position) statement; and (3) the statemen~ of changes in financial position. They are produced by the district for each school food service location, and consolidated statements are produced for and by the district. Each is prepared after a trial balance is determined and adjusting closing entries have been made by means of a worksheet. (These procedures are described in Chapter IV.) Income and Expense (Operating) Statement This statement shows an individual cafeteria's income revenues and expenses for a particular period. Year-to-date figures should accompany all monthly entries, especially when automatic data processing services are available. The format for the income and expense statement should include sections for revenue, cost of food used, operating expenses (including fringe benefits), and other overhead expenses. Percentages of these major costs in relation to revenue should also appear on this report. Balance Sheet (Position Statement) The balance sheet should be detailed for each school location and consolidated at the district level. Both current and fixed assets, as well as current and other liabilities, should appear along with the fund balance. Statement of Changes in Financial Position The statement of changes in financial position shows the sources and uses of a school food service fund's financial resources, Basically, the report is an analysis of both the balance sheet and the income and expense statement. The report may be viewed as a reconciliation between accrual accounting and cash accounting. Such a reconciliation is useful because the school food service fund may show no profit or loss, although cash balances may have increased or decreased significantly. This report will help to identify the reasons for such changes. To disclose all changes in financial position properly, the report also should reflect such non-cash transactions, e.g,, the acquisition of equipment in exchange for other property. OTHER ACCOUNTING TECHNIQUES There are several other techniques of accounting used in school food service operations, the most important being cost accounting and encumbrance accounting. Both types are discussed in greater detail in later chapters. I.26 • • • Cost Accounting Cost accounting is the assembling of all costs incurred in accomplishing a particular purpose or in carrying on a particular operation. Cost accounting implies that all costs incurred oy, or on behalf of, the operation are recorded and reported, so that complete cost comparisons can be made. The purpose of cost accounting is to allow management to make decisions on the operations of each location or program; each major element of cost is identified separately, so that reports contain the information most useful in decision-making. In the school food service fund accounting system, expenses are recorded in quite a number of general ledger accounts and also are recorded for each cafeteria location. Costs which cannot be attributed directly to specific locations will be allocated so that each location is charged with a reasonable proportion of that cost. In this way, the operation of each location may be analyzed. In addition, all costs will be assigned to programs (i.e., types of meals) so that the operations of each program may be assessed independently. Encumbrance Accounting (Optional) General A unique feature of accounting systems for all types of governmental agencies is the method by which strict control is maintained over the availability of funds for expenditures. To serve this purpose, a series of budgetary accounts is maintained in most governmental accounting systems. The use of these budgetary accounts is termed encumbrance (or obligation) accounting. Under the school food service fund accounting system, this type of accounting usually will be performed at the school district level. Definitions There are two specialized terms used in encumbrance accounting; they are defined as follows: • appropriation - an amount of money which is authorized for expenditure by a fund for a particular purpose during a particular period of time. There are usually strong administrative or legal sanctions taken if the expenditure of funds exceeds the amount authorized for that period • • encumbrance (obligation) - a reservation of appropriated funds which are designated to be spent for a specific purpose. The following are examples of encumbrances: 1.27 • a binding contract for the purchase of goods or services; • orders placed with a vendor; and • a payroll. Budgetary Accounts (Optional) There may be a minimum of three budgetary accounts in the general ledger of any accounting system which contains encumbrance accounting. Appropriations. This account represents the amount of appropriations available for encumbering. For the school food service fund, the appropriations will be based on the estimated amount of expenditures for the year. This account should never have a negative balance; any action that would cause it to become negative would result in strong administrative or legal action. To prevent such situations, the accountant frequently is required to certify that a proposed transaction which reduces the balance in the encumbrance account will not cause a negative balance in that account. Encumbrances. This account represents the amount of funds encumbered to date. Appropriations Received. This account represents the appropriation received for the accounting period. It must always be equal to the sum of the other two accounts. The appropriations received account is normally a debit balance account, while the other two are credit balance accounts. * * * ELEMENTS OF THE ACCOUNTING CYCLE SUMMARIZED In this chapter, journalizing, posting, and financial statement concepts were discussed. These subjects are all major elements of the cycle of accounting activities. Put into the proper sequence, these and the remaining stages of the cycle are as follows: 1. Source Documents. Transaction data are recorded on source documents by operations personnel. These forms range from payroll attendance sheets to reimbursement claim forms. These are all fully described in the succeeding chapters. 2. Journalizing. Journalizing involves entering transactions into one of the journals, as described in this chapter. I.28 • . ) 3. Posting. Posting involves entering journalized transactions into the general ledger, as described in this chapter. 4. Trial Balance. A trial balance is prepared to test bookkeeping accuracy and to aid the preparation of financial statements. 5. Work Sheet. A work sheet may be prepared at the end of a particular accounting period as a document to assist the accountant in preparing the financial statements. Various work sheets will be discussed in later chapters • 6. Adjusting Entries. Entries are made to correct previous accounting errors and affect accrual amounts, bad debts, or depreciation. These entries are journalized and posted in the same manner as transactions. 7. Closing Entries. The closing entries bring the balances of the revenue and expense accounts to zero to allow the accumulation of similar information in the next period. The net result is entered into the fund balance account. (This step is usually accomplished at the end of each year.) 8. Financial Statement. After all accounts are adjusted and up to date, the financial statements (e.g., balance sheet and income statement) are prepared. 1.29 • • CHAPTER II FOOD SERVICE ACCOUNTING FOR SMALL SCHOOL SYSTEMS INTRODUCTION The accounting system, as described in the preceding chapter, is designed for multi-unit school districts with centralized administrative staffs. However, a great number of school districts have relatively small food service operations. That is, all operational and administrative activities occur at one or a small number of locations. Therefore, certain modifications to the multi-unit accounting system are necessary to accommodate small districts. In many instances, the same procedures, forms, and reports which are used for the larger multi-unit school district are recommended for the small school district. Where they remain the same, they are discussed in general terms and cross-referenced to appropriate chapters. Procedures designed specifically for small districts (e.g., chart of accounts, including account definitions, recommended source documents, reports, books of account, and financial reports) are presented in detail. STRUCTURE OF FOOD SERVICE ACCOUNTS To operate the system described in the preceding chapter, a simple, consistent scheme of classifying transactions is necessary to provide sufficient information for management purposes. Therefore, the food service fund assets and liabilities will be classified only by general ledger account. The revenues and expenses of the fund will also be classified by general ledger account and, in addition, by program account. The general ledger accounts identify the assets, liabilities, revenue, and expenses by type. The program accounts further identify revenues and expenses by the type of meal served. General Ledger Accounts The general ledger accounts to be used in the small school district are shown in Figure II.l. They provide the basic financial classifications for each accounting event or transaction. In double entry bookkeeping, each transaction must affect two or more accounts, and the debit amounts must equal the credit amounts. Each general ledger account is subdivided into a "D" subaccount (e.g., lOOOD) and a "C" subaccount (e.g., lOOOC) to identify debits and credits. All normal activity in the general ledger accounts is expressed in terms of increasing either the "D" or "C" account. FIGURE II.1 GENERAL LEDGER ACCOUNTS FOR THE SMALL SCHOOL DISTRICT 1000 - 2900 BALANCE SHEET ACCOUNTS 1000 - 1300 Assets Other Than Fixed 1000 - Cash on Hand 1010 - Petty Cash 1020 - Cash, Checking Account 1030 - Cash, Payroll Checking Account 1040 Cash, Savings Account 1050 - Cash, Sinking Fund Account 1110 - Accounts Receivable, Due From _______ Fund 1130 - Accounts Receivable, Due From Government 1150 - Accounts Receivable 1210 - Inventories, Food 1220 - Inventories, Supplies 1300 - Prepaid Expenses 1400 - 1500 Fixed Assets 1400 - Equipment 1500 - Vehicles 1590 - Accumulated Depreciation 1600 - 1900 Other Assets 1600 - Ticket Value Account 2000 - 2600 Liabilities 2000 - Accounts Payable 2100 - Loans Payable 2200 - Accrued Liabilities 2300 - Accounts Payable, Due to 2400 - Accounts Payable, Due to 2500 - Accounts Payable, Due to 2600 - Deferred Income Funds Federal Government State Government 2650 - Employee Salaries and Benefits Payable 2700 - 2900 Fund Balance 2700 - Fund Balance 2800 - Fund Balance, Reserve For Fixed Assets II.2 i FIGURE II.l (CONT.) GENERAL LEDGER ACCOUNTS FOR THE SMALL SCHOOL DISTRICT 3000 - 4900 REVENUE AND EXPENSE (OR OBJECT) ACCOUNTS 3000 - 3900 Revenue Accounts 3100 - Sales to Pupils 3200 - Sales to Adults 3300 - Price Reduction for Reduced Price and Free Lunches 3350 - Price Reduction for Reduced Price and Free Breakfasts 3400 - Miscellaneous Revenue from Other Sources (Special Functions) 3500 - Revenues From State Sources, Cash Reimbursements 3520 - Revenue From State Sources, Other Cash Payments 3530 - Revenue From State Sources, Donated Goods and Connnod:i,ties 3700 - Revenue from Federal Sources, Federal Reimbursement 3750 - Donated Com~odities, Federal Sources 3800 - Local Revenue, Transfers 3850 - Local Reven~e, Miscellaneous 4000 - 4900 Expense or Cost Accounts 4000 - Salaries, Regular Time 4100 - Salaries, Overtime 4200 - Employee Benefits 4300 - Purchased Services 4400 - Donated Services 4500 - Supplies 4600 - Food 4650 - Donated Food 4700 - Equipment Depreciation (Federal Assistance) 4800 - Equipment Depreciation (Non-federal Assistance) 4850 - Other Donations 4900 - Other Expenses 5000 - 5900 BUDGETARY ACCOUNTS 5000 - 5500 Appropriations 5000 - Appropriations Received 5600 - 5900 Encumbrances 5600 - Encumbrances (Obligations) II.3 l Each general ledger account is defined in the following paragraphs. The numbering system used is for illustrative purposes only. School districts already having food service general ledger account numbering systems may continue using them; however, the use of the system shown in this handbook is encouraged if none is currently in use. 1000 - 1300 DEFINITIONS OF GENERAL LEDGER ACCOUNTS ASSETS OTHER THAN FIXED Increase OOOOD when assets are received. Increase OOOOC when assets are reduced. 1000 Cash on Hand - The balance as of date of cash received but not deposited in the bank. 1010 Petty Cash - The balance as of date of the authorized petty cash balance less receipts for expenditures made. 1020 Cash, Checking Account - The current balance in the fund's checking account(s), plus deposits in transit. 1030 Cash., Payroll Checking Account - This special bank account is for checks drawn in payment of payroll and is increased by monies drawn from account 1020. 1040 1050 1110 1130 Cash, Savings Account - This account is for all monies deposited with the bank for the purpose of earning interest. Cash, Sinking Fund Account - The current balance of cash on hand or on deposit with any agent which is designated for the future purchase of specific fixed assets. Due From Fund - The amount owed the food ser-vice fund by another fund within the school system. Separate accounts for amounts due· from each fund are recommended. Due From Government - The amount owed the food service fund by other governmental units. These amounts may represent grants, charges for service rendered, etc. Separate accounts for amounts due from each governmental unit are recommended. II .4 • 1150 Accounts Receivable - Amounts owed to the food service fund from individuals, and organizations, other than other funds and governmental units. 1210 Inventories, Food - The cost of food on hand (whether or not it has been paid for), including the normal market cost of donated food or food purchased at a reduced price. 1220 1300 1400 - 1500 Inventories, Supplies - The cost of supplies on hand (whether or not they have been paid for). Supplies are primarily cleaning materials, such as soap, sponges, mop heads, etc. Items such as trays, silverware, and food preparation utensils are set up as a one-time inventory and their replacement value is considered an expense. Prepaid Expenses Amounts paid in advance for such items as insurance premiums. FIXED ASSETS Increase OOOOD when assets are received. Increase OOOOC when assets are reduced, (except for account 1590). 1400 Equipment - The cost of all equipment (except motor vehicles) minus amounts representing the use or loss of value of the equipment (accumulated depreciation). Items of small initial cost are to be treated as supplies and not as equipment. 1500 Vehicles - ·The cost of all motor vehicles minus accumulated depreciation. 1590 Accumulated Depreciation - A credit balance account in which a portion of the value of fixed assets is accumulated to represent the use, or loss of value, of the assets. Increase 1590D for reversing or adjusting amount of accumulated depreciation charged to a specific piece of equipment when the equipment is sold or otherwise disposed of. Increase 1590C to represent the loss of value due to the depreciation of an asset or group of assets, which is the amount of accumulated depreciation. II.5 1600 - 1900 1600 2000 - 2600 2000 OTHER ASSETS Ticket Value Account - The full sales value of tickets on hand in the school office. The account is always offset by the deferred income account. (Refer to account 2600 Deferred Income.) LIABILITIES Increase OOOOD when liabilities are paid. Increase OOOOC when liabilities are incurred. Accounts Payable - Balances due (other than salaries and taxes) to individuals and organizations (other than other funds and governmental units) for goods and services received but not yet paid for. 2100 Loans Payable - Balance of outstanding loans due to others. 2200 Accrued Liabilities - Amounts due to others for which 2300 the liability is incurred over time, rather than at a specific point in time. Accrued liabilities include salaries payable, employee benefits payable, annual and sick leave liability, taxes payable, and interest payable. Due to Fund - The amount owed by the food ser-vice fund to another specific fund within the school system. Separate accounts for amounts due to each fund are recommended. 2400 Due to Federal Government - The amount owed by the food service fund to a Federal governmental agency. Separate accounts for amounts due to each governmental unit are recommended. 2500 Due to State Government - The amount owed by the food service fund to a state governmental agency. Separate accounts for amounts due to each governmental unit are recommended. 2600 Deferred Income - The full sales value of tickets, either on hand or already sold, for which no meals have been served. (It is offset by the Ticket Value Account, account 1600.) 2650 Employee Salaries and Benefits Payable - The amounts due for wages and salaries earned but not yet paid. Also balances due to other governmental units and business II.6 • • .. 2700 - 2900 2700 2800 3000 - 3900 3100 3200 3300 organizations for amounts collected from employees or contributed by the employer (food service fund) for employee benefits, such as hospitalization and life insurance, FICA taxes, withholding taxes, etc. FUND BALANCE Increase OOOOD when closing the expense accounts at the end of an accounting period. Increase OOOOC when closing the revenue accounts at the end of an accounting period. Fund Balance - The difference between total assets and total liabilities minus the reserve for fixed assets. Reserve for Fixed Assets - This account represents that portion of the fund balance reserved for the future procurement of fixed assets. It will have the same balance as the Sinking Fund Account, account 1050. REVENUE ACCOUNTS Increase OOOOD when closing the revenue accounts to fund balance at the end of an accounting period. Increase OOOOC when revenue is earned, regardless of when payment is received. Sales to Pupils - The value of meals served to pupils during the accounting period. Sales to Adults - The value of meals served to adults during the accounting period. Price Reduction for Reduced Price and Free Lunches - A debit balance account representing the value of reductions in price of reduced price and free lunches served during the accounting period • 3350 Price Reduction for Reduced Price and Free Breakfasts - A debit balance account representing the value of reductions in price of reduced price and free breakfasts served during the accounting period. 3400 Miscellaneous Revenue from Other Sources (Special Functions) - The value of all revenue, except that from state and federal sources. II. 7 · Revenue from State Sources 3500 3520 3530 State Cash Reimbursements - The amount of state funds earned during the accounting period which can be included as part of the state matching of federal funds requirement and also may be included in meeting the state revenue matching requirement. Other State Cash Payments - Cash funds received from the state (for labor, equipment, etc.). It excludes funds for building, alteration of buildings, and acquisition or rental of land or buildings. Value of Donated Goods and Commodities Received From State Sources - The value of goods and commodities donated to the food service fund during the accounting period. This account should be included as part of state matching and funds used requirements. Revenue from Federal Sources 3700 3750 Federal Reimbursement - The amount of federal reimbursement earned during the accounting period. Value of Donated Commodities Received from Federal Sources - The market value of all commodities donated to the food service fund during the period. Revenue from Local Sources 3800 Transfers from Other Funds - The amounts which other funds are required to transfer to the food service fund during the accounting period; this includes only those funds from local sources which can be allowed for food service program purposes. There should be a separate account for each fund. This account should not include amounts that are prepayable. 3850 4000 - 4900 Miscellaneous Revenue from Local Sources - This account includes the value of donated goods and services from local sources. EXPENSE OR COST ACCOUNTS Increase OOOOD when an expense is incurred. Increase OOOOC when an expense account is closed to fund balance at the end of an accounting period. n.s r , • 4000 4100 4200 4300 4400 4500 Salaries, Regular Time- The amoun~ earned by employees for regular hours worked during the accounting period. Salaries, Overtime- The amount earned by employees for work beyond regular hours for which an overtime premium is paid. Employee Benefits- The employer's share of all employees' benefits and payroll taxes, including FICA taxes, unemployment taxes, workman's compensation insurance, life insurance, hospitalization insurance, retirement contributions, holiday pay, annual leave, and sick leave. Purchased Services - The cost of all services purchased from outside vendors or from other funds, including laundry, trash removal, extermination, accounting, computer time, transportation (except food delivery), travel and training, utilities, repairs and maintenance, professional and technical services, rentals, and printing and binding. Donated Services - The value of services donated to the food service fund during the accounting period. Supplies - The cost of all supplies purchased during the period. At the end of the period, this account is added to the beginning inventory. The ending inventory is subtracted from this sum to determine the cost of supplies used. 4600 Food - The cost of all food purchased during the period, ' including processing, storage, handling, and transportation costs for food and contracted prepared meals. At the end of the period, the beginning food inventory is added to this account. The ending food inventory is subtracted from this sum to determine the cost of food used. 4650 Donated Food - The market value of USDA-donated commodities used during the accounting period. 4700 4800 Equipment Depreciation (Federal Assistance) - Amounts charged during the period to represent the use, or value lost, of equipment and vehicles which were supplied by the Federal Gover~ent. Equipment Depreciation (Non-federal Assistance) - Amounts charged during the period to repres~nt the use, or value lost, of equipment and vehicles which were supplied by sources other than the Federal Government. 11.9 4850 4900 5000 - 5500 5000 5600 - 5900 5600 Other Donations - The market value of donated commodities, other than USDA-donated commodities, and other donations given to the school food service fund. Other Expenses - The cost of all other items during the accounting period·. APPROPRIATIONS Increase 5000D When encumbrances are incurred or when closing the account at the end of the year. Increase 5000C when appropriations are received. Appropriations Received - The total amount made available for expenditure during the year. ENCUMBRANCES Increase 5600D when closing the account at the end of the year. Increase 5600C when encumbrances are incurred. Encumbrances - The total amount expended, or reserved for expenditure, during the year. PROGRAM ACCOUNTS Program accounts, shown in Figure II.2, are used to subdivide the revenue and expense accounts. The primary program categories identify the type of meal served, thus assisting in determining federal and state reimbursements. Each time a transaction affects a revenue account, a program account must also be used. The subsidiary revenue ledger will accumulate each revenue account separately and will accumulate revenues, generated by each program, within each revenue account. If used, the special functions program account should be subdivided to identify all special functions separately. Since some revenues are not assignable to any particular meal type, a special miscellaneous revenue program account has been included for use only when it is impossible to assign revenues to other accounts. The program accounts are used to subdivide the expense accounts through an allocation process discussed in Chapter III. A definition of each program account follows in the succeeding paragraphs. II.lO • 1 2 3 4 5 6 FIGURE 11.2 PROGRAM ACCOUNTS Breakfast Type A Lunch Special Milk Program A la Carte Special Functions Miscellaneous DEFINITIONS OF PROGRAM ACCOUNTS 1 Breakfast - The breakfast program is used to account for all sales, price reductions, and reimbursements assignable to breakfasts as defined in Section 220.8 of the National School Breakfast Program Regulations. 2 Type A Lunch - The Type A lunch program is used to account for all sales, price reductions, and reimbursements assignable to Type A lunches as defined in section 210.10 of the National School Lunch Program Regulations. 3 Special Milk Program - The special milk program account is used to accumulate all sales, price reductions, and reimbursements assignable to the National Special Milk Program. 4 A la Carte - The a la carte program is used to account for all regular sales, price reductions, and cash payments not included in program accounts 1, 2, or 3. 5 Special Functions - The special function program is used to account for all sales, price reductions, and cash payments which result from special functions. Separate subaccounts should be used to account for different functions. 6 Miscellaneous - The miscellaneous revenue program account is used to accumulate all revenue that cannot be assigned to any of the other program accounts. An example of such revenue would be a lump sum payment from local sources made without regard to meals served. INVENTORY MANAGEMENT Among the current assets, inventories are frequently the most difficult to account for.. An inventory is the supply of particular types of goods or materials at a given time. II.ll While many different food and supply items are stored and should be identified by item for reordering purposes, it is convenient to group those items into broad categories by type for accounting and reporting purposes. Therefore, the handbook contains the following inventory groupings: • food; • lunchroom supplies; • custodial supplies; and • office supplies. In reporting the financial position of a school food service fund, two considerations are important in establishing a "value" for the inventories. The first consideration is essentially a question of determining what is physically in the inventory; the second is determining the worth of each item in the inventory. The two different methods for resolving the first consideration are perpetual inventory and periodic inventory. Perpetual Inventory A detailed record of each type of goods or materials is maintained. Additions and withdrawals from the inventory are recorded so that the current level of inventory can be determined immediately, and the material usage during an accounting period also can be determined readily. This system must be controlled to ensure that each withdrawal is recorded. Also, the accuracy of the inventory records should be verified regularly by actually counting the inventory (i.e., by taking a physical inventory). When a physical inventory shows that the actual level of inventory differs from that shown on the inventory records, adjusting entries are required. These entries are handled in one of two ways: • The difference is recorded to increase or decrease the cost accounts directly, as if they represented normal withdrawals from or additions to inventory • • The difference is recorded as an increase or a decrease to a special inventory variance cost account. This method is used only when several locations (each responsible for its own costs) used the same inventory and when locations are not to be charged with costs resulting from inventory waste and spoilage. II.12 • Periodic Inventory The level of inventory is determined by a physical count at the end of each accounting period when using this method. Each addition to an inventory is recorded in a "purchases" account, but each withdrawal is not recorded. The amount of material used during the accounting period is calculated by subtracting the amount on hand at the end of the period from the amount available during the period (i.e., the beginning inventory plus total purchases). This type of periodic inventory is best suited for smaller facilities with fastmoving inventories. Inventory Valuation The second problem in valu~ng inventory is determining the worth of each individual i _tem in the inventory. For most items, the actual cost (based upon the most recent purchase) is used. However, this basis cannot be used for donated commodities. In this case, the estimated cost or market value (whichever is lower) of the commodities is used. Inventories should only be maintained when items of significant value are stored until needed. For example, in many school food service funds, a small amount of office supplies might be maintained in a supply cabinet; it is not necessary to treat the supply cabinet as an inventory if the value of the supplies is minimal. However, the supply cabinet may be kept locked for security reasons when necessary. TICKET VALUATION PROCEDURES Techniques for controlling prepaid meal transactions are available to school food service management personnel. They are the use of prenumbered meal tickets and the establishment of a ticket value control account. The following example describes general ledger accounting entries utilizing a ticket value control account. Assume that tickets valued at $5,000 are on hand in the school office. These tickets will be sold to pupils and adults for meals. The following account entries are made in the general ledger to establish the ticket value account: DR ticket value account (account 1600D) $5,000 CR deferred income (account 2600C) $5,000 The school office secretary sells $500 worth of tickets on the first day of the month. Cash received for these tickets is $375, II.l3 because there was a total price reduction of $125 for free and reduced price tickets sold. Therefore, the following entries are made: DR cash (account lOOOD) $375 DR price reduction (account 3300D) $125 CR ticket value account (account 1600C) $500 On the same day, tickets for meals are collected in the cafeteria service line by the cashier. The total value of these tickets is $450 (not all of the tickets sold were collected). The entry to be made is as follows: DR deferred income (account 2600D) $450 CR sales to pupils (account 3100C) $450 If it is a school district's policy to refund unused tickets, the entry shown below is made as refunds are given. If the total valuation of tickets refunded were $25 and $20 cash was actually refunded, then the following entry is made: DR ticket value account (account 1600D) $25 CR cash-checking account (account 1020C) $20 CR price reduction (account 3300C) $ 5 If tickets are lost, the following entry is made: DR deferred income account (account 2600D) $15 CR ticket value account (account 1600C) $15 Many school food service funds have both cash and ticket sales; in such cases, both of the above systems (as illustrated in Appendices A, C, and D) are used. TICKET VALUATION ACCOUNT--END-OF-YEAR ACCOUNTING At the end of the school year, unsold tickets should be accounted for in the ticket valuation account. It is recommended that an accounting of unsold tickets be made at more frequent intervals, possibly monthly or quarterly, under conditions that are comparable to those in the following example. II.l4 • At the end of the school year, there were 1,000 unsold tickets on hand, valued at $.50 each. However, the accounting entries for the year show an ending balance in the ticket value a·ccount, #1600, of $600.00. The following computation and entry would be required. Computation of Tickets Physically on Hand: 1,000@ $ .50 Book value of account 1600 Shortage of tickets on hand = = = $500.00 600.00 $100.00 A journal voucher would have to be prepared for approval showing the following entry. Account No. Debit Credit Deferred Income 2600D $100.00 Ticket Value Account 1600C $100.00 After being approved, the journal voucher should be journalized and then posted to the general ledger. At this time the ticket value account and the deferr~d income account should theoretically have equal account balances; however, their balances will likely differ because: (1) some students will either lose or not use some tickets, and the deferred income will not have received the entry for the food sale; (2) there may be some errors in accounting entries; and (3) the adjustment to the ticket value account, as shown above, is affecting the deferred income account. Therefore, the deferred income account will also require a journal voucher adjustment. The procedure for adjusting the deferred income account should be under conditions comparable to those in the following example. At the end of the school year, after notice has been given to all students to claim refunds (if a refund policy is practiced), the ticket valuation account is adjusted to $500.00, and the deferred income account now has a book balance of $750.00. The deferred income account should now be adjusted to the ticket valuation account balance and would be computed as follows. Deferred income book balance Ticket value account balance Adjustment required 11.15 $750 500 $250 A journal voucher would have to be prepared for approval showing the following entry. Deferred Income Miscellaneous Revenue Account No. 2600D 3400C Debit Credit $250.00 $250.00 If there is only $250 in the deferred income account because of earlier ticket counting errors, this difference between $500 of ticket valuation on hand, must be absorbed as an expense. The entry would be as follows: . Miscellaneous Revenue Deferred Income PAYROLL ACCOUNTING Account No. 3400D 2600C Debit Credit $250.00 $250.00 Payroll accounting follows a general pattern of events that is only changed by local and state tax laws and payroll procedures of the organizational entity. Based on this premise, the following sequence of events is being used to explain payroll accounting. (Personnel record keeping is not included except where an overlap may be involved.) • timekeepingj • gross pay computation; • payroll deduction computation; • net pay computation; • payroll journal entries; • general and payroll ledger posting; and • employee payroll record completion. Timekeeping The time and attendance record in Appendix H is recommended for compiling each employee's time worked where a two-week payroll base period is used. If the school uses other than a two-week period, this form should be modified accordingly. The specifications given in Appendix H apply for completing the time and attendance report regardless of the pay period used. II.l6 ,. • Gross Pay Computation At the end of each time reporting period, gross pay computation must be made for each employee. The pay computation will fall into two major categories: (1) salaried employees who receive the same gross pay each period based on their annual salary rate, and (2) hourly employees who are paid based on the number of hours worked. According to local school policy, overtime may be paid for work performed over a specified number of hours. Following the example in Appendix H, the computation for Barbara James' gross pay might be as follows: Hours Regular 80 Overtime 10 Rate $2.00 3.00 Amount $160.00 30.00 $190.00 The rate of $3.00 for overtime is 1 1/2 times the regular rate. Payroll Deduction Computation Federal Income Tax Withholding With few exceptions, employers of one or more persons are required to calculate, collect, and remit to the Federal Government the income taxes of their employees. The amount of federal income tax to be withheld from an employee's wages is determined by his wages and number of exemptions. Each covered employee is required to furnish his employer with an employee's withholding exemption certificate (Form W-4, furnished by the local office of the Internal Revenue Service (IRS)), Most employers use a wage bracket withholding table in determining federal income taxes to be withheld from an employee's gross earnings. These tables, which are prepared for weekly, biweekly, semimonthly, and monthly pay periods, are also available from the IRS. Determining the federal income tax to be withheld from an employee's gross wages is simple when utilizing a withholding table. For example, the employee's wage bracket is found in the first two columns. Then the amount to be withheld is found on the line of the wage bracket in the column showing the number of exemptions to which the employee is entitled as claimed by him on his Form W-4a Federal Insurance Contributions Act (FICA) Under the Federal Insurance Contributions Act, employers are required to deduct a specified percentage of the employee's gross pay up to a certain limit. Because the law is constantly changing, specific amounts cannot be included in this handbook. However, the tax II.l7 rate for calendar year 1972 is 5.85% on $10,800 and is imposed on the employer as well as the employee. That is, for eac~ deduction made from the employee, the employer is required to mate~ t~at amount. In some cities and states, employers must also deduct employee city and state income taxes. When this is necessary, the city and state taxes are handled in much the same manner as the federal income taxes. In addition to the payroll deductions for taxes, employees may individually authorize deductions for: • U.S. savings bonds; • health, life, or other insurance; • loan repayments; and • donations to charitable organizations. Net Pay Computation Using the previous example of Barbara James' earnings of $190.00 for a two-week period, the following will illustrate the computations used in determining the net pay: Type of Withholding Federal Income Tax FICA Local Taxes Other Comments Assume two exemptions and use the tax deduction table discussed previously (see Figure 11.3). 5.5% of $190.00. The deduction for FICA will stop when withholding has been made on $10,800.00. Assume 1% of gross earnings. This deduction may be for U.S. bonds, savings, etc. Total deductions Amount $ 18.10 10.45 1.90 3.75 $ 34.20 Net Pay ($190.00 - $34.20) $155.80 1I.18 FIGURE II.3 TAX DEDUCTION TABLE BIWEEKLY Payroll Period....: Employee NOT MARRIED- Effective January 16, 1972 And the wages are· And the number of withholding exemptions claimed Is- At But less 0 1 2 3 4 5 • 7 8 9 10e~ least than mo,. - The amount of income tax to be withheld shall b- .. ~g S22 so so so so $0 $0 so so so so so 24 .30 0 0 0 0 0 0 0 0 0 0 24 26 .50 0 0 0 0 0 0 0 0 0 0 26 28 .80 0 0 0 0 0 0 0 0 0 0 28 30 1.10 0 0 0 0 0 0 0 0 0 0 30 32 1.40 0 0 0 0 0 0 0 0 0 0 32 34 1.70 0 0 0 0 0 0 0 0 0 0 34 36 1.90 0 0 0 0 0 0 0 0 0 0 36 38 2.20 0 0 0 0 0 0 0 0 0 0 .38 40 2.50 0 0 0 0 0 0 0 0 0 0 40 42 2.80 0 0 0 0 0 0 0 0 0 0 42 44 3.10 0 !) 0 0 0 0 0 0 0 0 44 46 3.30 0 0 0 0 0 0 0 0 0 g 46 48 3.60 0 0 0 0 0 0 0 0 0 48 50 3.90 0 0 0 0 0 0 0 0 0 0 50 52 4.20 .10 0 0 0 0 0 0 0 0 0 52 54 4.50 .40 0 0 0 0 0 0 0 0 0 54 56 4.70 .70 0 0 0 0 0 0 0 0 0 56 58 5.00 1.00 0 0 0 0 0 0 0 0 0 58 60 5.30 1.30 () 0 0 0 0 0 0 0 0 60 62 5.60 1.50 0 0 0 0 0 0 0 0 0 62 64 5.90 1.80 0 0 0 0 0 0 0 0 0 64 66 6.10 2.10 0 0 0 0 0 0 0 0 0 66 68 6.40 2.40 0 0 0 0 0 0 0 0 0 68 70 6.70 2.70 0 0 0 0 0 0 0 0 0 • 70 72 7.00 2.90 0 0 0 0 0 0 0 0 0 72 74 7.40 3.20 0 0 0 0 0 0 0 0 0 74 76 7.80 3.50 0 0 0 0 0 0 0 0 0 76 78 8.10 3.80 0 0 0 0 0 0 0 0 0 78 80 8.50 4.10 0 0 0 0 0 0 0 0 0 80 82 8.80 4.30 .30 0 0 0 0 0 0 0 0 82 84 9.20 4.60 .60 0 0 0 0 0 0 0 0 84 86 9.60 4.90 .90 0 0 0 0 0 0 0 0 86 88 9.90 5.20 1.10 0 0 0 0 0 0 0 0 88 90 10.30 5.50 1.40 0 0 0 0 0 0 0 0 At But less 0 1 2 3 4 5 6 7 8 9 10 or least than more 90 92 10.60 5.70 1.70 0 ~ 0 0 0 0 0 o· 92 94 11.00 6.00 2.00 0 0 0 0 0 0 0 0 94 96 11.40 6.30 2.30 0 0 0 0 0 0 0 0 96 98 11.70 6.60 2.50 0 0 0 0 0 0 0 0 98 100 12.10 6.90 2.80 0 0 0 0 0 0 0 0 100 102 12.40 7.30 3.10 0 0 0 0 0 0 g 0 102 104 12.80 7.60 3.40 0 0 0 0 0 0 0 104 106 13.20 8.00 3.70 0 0 0 0 0 0 g 0 106 108 13.50 8.30 3.90 0 0 0 0 0 0 0 108 110 13.90 8.70 4.20 .20 0 0 0 0 0 0 0 110 112 14.20 9.10 4.50 .50 0 0 0 0 0 0 0 112 114 14.60 9.40 4.80 .70 0 0 0 0 0 0 0 114 116 15.00 9.30 5.10 1.00 0 0 0 0 0 0 0 116 118 15.30 10.10 5.30 1.30 0 0 0 0 0 0 0 118 120 15.70 10.50 5.60 1.60 0 0 0 0 0 0 0 120 124 16 .20 11 .00 6.00 2.00 0 0 0 0 0 0 0 124 128 16.90 11 .80 6.60 2.60 0 0 0 0 0 0 0 128 132 17.70 12.50 7.30 3.10 0 0 0 0 0 0 0 132 136 18.40 13.20 8.00 3.70 0 0 0 0 0 0 0 136 140 19.10 13.90 8.70 4.20 .20 0 0 0 0 0 0 140 144 19.80 14.60 9.40 4.80 .80 0 0 0 0 0 0 144 148 20.50 15.40 10.20 5.40 1.30 0 0 0 0 0 0 148 152 21 .40 16.10 10.90 5.90 1.90 0 0 0 0 0 0 152 156 22.20 16.80 11 .60 6.50 2 40 0 0 0 0 0 0 156 160 23 .10 17.50 12.30 7.10 3.00 0 0 0 0 0 0 160 164 23.90 18.20 13.00 7.90 3.60 0 0 0 0 0 0 164 168 24.70 19.00 13.80 8.60 4.10 .10 0 0 0 0 0 168 172 25.60 19.70 14.50 9.30 4.70 .60 0 0 0 0 0 172 176 26.40 20.40 15.20 10.00 5.20 1.20 0 0 0 0 0 176 180 27.30 21 .20 15.90 10.70 5.80 1.80 0 0 0 0 0 180 184 28.10 22.00 16.60 11 .50 6.40 2.30 0 0 0 0 0 184 188 28 'lO 22.90 17.40 12.20 7.00 2.90 0 0 0 0 0 188 192 29 .80 23.70 18.10 12.90 7 70 3.40 0 0 0 0 0 192 196 I 30.60 24 .60 18.80 13.60 8.40 4.00 0 0 0 0 0 196 200 31.50 25.40 19.50 14 .30 9.10 4.60 .50 0 0 0 0 ---- BIWEEKLY-Not Married-Wages SO to 200 II.l9 Payroll Journal Entries An illustration of the payroll journal is presented in Appendix I. Information from the net payroll computation and the time and attendance records should be used for the entries into the payroll journal. The journal has the features discussed below. Line Entries for Each Employee Within a School Location. Employees' names and pay rates are entered and used as reference information. Regular and overtime hours are entered so that earnings for the period may be calculated. Earnings and Deductions. Columns are provided to record regular, overtime, and total (gross) earnings. Deduction columns are detailed for FICA, withholding taxes, insurance, and retirement payments and are then totaled for posting to the general ledger account. "Net Pay" and "Check Number" columns and a column for entering the pay period date (ending date of the period) are also provided. Program and Function Journal Distribution Entries. Worksheets (Appendix I), which are part of the payroll journal, are recommended for computing distributions to programs and functions. An "Hours" column for each program and function is provided on the worksheet so that an employee's hours from his time sheet may be posted directly to this worksheet. The distributed labor dollar amount is then calculated by multiplying program, or function, hours by the employee's hourly rate. All program and function amounts are then totaled for the pay period. Employer-paid expenses also are prorated on the basis of total employee program and function dollars. Recording Deposit into a Payroll Account. A transfer is made from the operating bank account to a payroll account for the full amount of the payroll liability, including withholding, FICA taxes, and other payments which are not immediately disbursed to payees. Salaries are paid immediately and are recorded as a disbursement from the payroll account. The remaining balance represents the withheld accounts which have yet to be paid to the government, retirement funds, etc., and which will be disbursed when they are due. Payroll journal entries reflect payment of payroll expenses and are entered for each individual employee: Debit 4000D-4100D Salaries Credit 1030C Cash, Payroll Checking Account 2650C Employee Benefits Payable II.20 • .. • Payroll journal entries reflect the employer's share of payroll taxes ·and fringe benefits and are entered in total for the entire payroll: Debit Credit 4200 Employee Benefits 2200 Accrued Liabilities Payroll journal entries reflect the replenishment of the payroll bank account for the gross amount of the total payroll, plus the employer's share of payroll taxes and employee benefits: Debit 1030 Cash, Payroll Checking Account Credit 1020 Cash, Cheqking Account Sample general and payroll ledger postings are shown in Appendix J. Employee Payroll Record Completion An employee payroll record is required to report income for federal income tax and other purposes. It usually is arranged to parallel the payroll journal and is similar to the one illustrated in Appendix K. It is customary to record each pay period individually on hand-posted records and to use separate "Year to Date" columns in machine accounting. Usually, the headings of the employee payroll record provide spaces for recording all of the informat·ion needed to calculate the gross pay for an individual. A "standard entry" line, which consists of the employee's normal gross pay, net pay, and deductions, frequently is included on the employee payroll record. The figures are entered when the employment contract has been signed and the standard deductions are determined. From that point on, the same amounts are used .for each pay period unless an exception, such as overtime, a change .in salary, or a change in deductions, occurs. This procedure eliminates the necessity for recalculating unchanged figures each pay period. The employee payroll record is "footed" (i.e., each individual column is added) periodically to verify the accuracy of the postings. Official totals are usually taken at the end of the fiscal year and at the end of the calendar year. Usually, fiscal year totals are required for the annual audit of payroll records. Calendar year totals are required for reporting withholding tax or social security information to federal, state, or other involved agencies. Additional discussion on payroll accounting is included in Chapter VII. II.21 .. • • CHAPTER III ALLOCATION OF COSTS AND EXPENSES CONCEPT OF FULL COSTING Cost allocation is the process of identifying and assigning costs to the "product'' for which the costs have been incurred. In the case of school food service fund accounting, the "product" can be viewed as the particular type of meal served (program). Costs are also allocated to school locations so that complete operating reports can be prepared. The school food service fund accounting system is predicated on the concept of full costing. This means that all costs., whether incurred directly by the school or program or indirectly on behalf of the school or program, will be charged to it. PURPOSE OF FULL COSTING There are two primary reasons for using the full costing method of accounting. Only by recording all costs chargeable to a fund or program can management properly control the school food service fund'~ total operation. For example, to make decisions, such as the.normal price charged for meals, without full cost data could result in setting the price of meals too low or too high. The second reason for using full costing is that many indirect costs of a school food service fund, or of particular programs, are reimbursable by other funds and governmental agencies. Therefore, the accounting system must provide sufficient data to ensure the appropriate amount of reimbursement. TYPES OF COST ALLOCATIONS Full costing in school food service fund accounting involves two different types of allocations. The first is assigning costs to individual school locations. This type of allocation will be required for such services as centrally prepared meals, centralized delivery services, centralized inventory receiving and storage, and centralized administrative services. This type of allocation may also be required for such costs as utility bills and general administrative costs which are allocated from the governmental unit to the school district. It also may be required from the food service fund to the school district where services are shared among all school fund entities. III.! The second type of allocation is assigning costs that have been collected and recorded in total to individual programs to achieve full program costing. Each of these allocations is discussed in detail for each of the various types of costs involved. Allocation computations are to include costs incurred by all of a school district's funds on behalf of the school food service fund. Costs incurred beyond the local school district (such as costs incurred by the State and Federal Governments), which are not charged specifically to a school district's food service operation, are pot to be considered as allocable school food service fund costs. Bases for allocation are, therefore, restricted to costs incurred by the school district and the school food service fund. GENERAL ALLOCATION PROCEDURES Some costs are easily identifiable with the school location or program for which they are incurred; however, many are not. Some costs are incurred for all school locations and all programs simultaneously (e.g., accounting services). Some costs may be identifiable with a particular location but not readily identifiable with specific programs at that location (e.g., the cost of equipment used to prepare food for all programs at a single school location). Other costs may be identifiable with specific programs but not with specific locations (e.g., printing and distributing weekly district-wide menus for a particular type of meal). To provide school district and school food service fund management with sufficient information to manage the total food service operation properly and to prepare claims for the maximum reimbursements to which the fund is entitled, all of the costs mentioned above must be allocated to the various school locations and programs for which they were incurred. The allocation process involves determining a reasonable distribution of costs to the program, location, and cost accounts for which the cost was incurred. The overall flow of the allocation process is shown in Figure III.l. It illustrates the two allocation processes which are necessary to allocate fully all costs to programs and locations. Recording Allocations to Programs When allocating to programs, no journal entries or general ledger postings are required. The allocation takes place while reports are being prepared. The allocation process involves dividing the general ledger account balance among the various locations or programs to complete the reports. III.2 • " FIGURE III .1 SCHOOL FOOD SERVICES ALLOCATION PROCESSES Undistribu Costs Allocated Costs ted I Location I Program Central Services Allocation Process Location Location Allocation Process Program Program III.3 Allocation to Locations Central services costs are allocated to all school locations. Allocation to Programs Central services costs and location costs are allocated to programs. Allocation Checklists When preparing reports, worksheet checklists such as those shown in Figures III.2 and III.3 will be useful for allocation purposes. Figure III.2 shows the basis for allocation of costs to programs, and Figure III.3 shows allocation of costs to locations. When calculating allocations, worksheets such as those shown in Appendices P and Q should be used. The allocation worksheet for purchased services, indirect labor, and other expenses (Appendix P) should be used for all types of allocations, except for allocating cost of food sold, which has a special worksheet (Appendix Q). Several of the allocation procedures require the use of figures from an income statement. The most recent income statement for the year-to-date should be used as the source for such figures. In this way, the effect of monthly fluctuations will be minimized, and a more reasonable allocation of costs will result. ALLOCATION TO LOCATIONS Labor Most labor will be directly charged to the various locations because most employees work at a single school cafeteria location. However, certain district level employees in the purchasing and administration function will not be in position to charge their salaries and benefits to a particular school location account; their costs and benefits will have to be allocated to various locations. Since this indirect labor cost from the district level employees will be relatively small in comparison to total costs, the allocation process should be as simple as possible while still ensuring that reasonable charges are made to each school location. A recommended method is to allocate this indirect labor based on cafeteria direct labor costs, i.e., the direct labor costs for a school location are calculated as a percentage of total direct labor costs for school locations. The total indirect labor cost at the district level is multiplied by this percentage. Purchased Services Services may be purchased at the school district level, and a double allocation may be required. First, costs should be allocated from the school district general fund to the school food service fund, and second, these costs may be subsequently allocated to various location accounts within the school food service fund. Although allocations III.4 H H .H V1 • Cost Element Cost of Food Sold Indirect Labor Laundry and Linen Trash Removal Extermination Accounting Services Computer Services Transportation Charges Training Utilities Repairs and Maintenance Professional and Technical SPrvirPS Rentals Printing and Binding Miscellaneous Purchased Services Depreciation Costs All Other '" -~ FIGURE III. 2 CHECKLIST FOR ALLOCATING COSTS TO PROGRAMS Allocation Accomplished Allocation Basis J F M A M J J A s 0 N D Stancard Meal Costs Direct Labor Cost Direct Labor Hours Cost of Food Sold Cost of Food Sold Total Revenue Total Revenue Cost of Food Used, or Total Revenue Number of Meals Served Number of Meals Served Number of Meals Served Number of Meals Served Number of Meals Served Number of Meals Served Total Revenue Number of Meals Served Total Revenue H H .H 0\ COST ELEMENT Indirect Labor Laundry and Lin~n Trash Removal Extermination Accounting Services Computer Services ~ransportation Charges ~raining !utilities ~epairs and Maintenance Professional and Technical Service !Rentals ~rinting and Binding Riscellaneous Purchased Services ~epreciation Costs !All Other FIGURE III .3 CHECKLIST FOR ALLOCATING COSTS TO LOCATIONS BASIS OF ALLOCATION FROM BASIS OF ALLOCATION FROM ALLOCATION ACCOMPLISHED DISTRICT TO CAFETERIA FUND CAFETERIA FUND TO LOCATIONS J F i-M A M .T .T A .s In IN In Estimated No. of Hours Worked (% of Time Spent) Direct Labor Cost Average Daily Average Daily Participation Attendance Number of Personnel Average Daily Average Daily Participation Attendance Cost of Food Sold Average Daily Average Daily Number of Direct Hours I Participation Attendance Number of Transactions or Number of Transactions or Total Revenue Total Revenue Number of Transactions or Number of Transactions or Total Revenue Total Revenue Food Service Cost/Total Cost Miles or Direct Hours Direct Labor Hours Direct Labor Cost Number of Square Feet Number of Square Feet Number of Direct Hours Number of Direct Hours Number of Service Hours Number of Service Hours (Various Types of Rentals ~ (Various Types of Rentals to be considered) to Be Considered) Food Service Revenue/Total Revenue Direct Hours. Number of Pages. or Job Basis Total Revenue Total Revenue (Various Types of Equipment (Various Types of Equipment to Be Considered) to Be Considered) Total Revenue Total Revenue - - '0 " • I • ., to the school food service fund may not be made in one of the methods listed below, the following guidelines should be observed in making allocations to the various location accounts: Type of Service laundry and linen trash removal extermination accounting services computer services Basis of Allocation From Other School District Funds to the School Food Service Fund average daily participation calculated as a percentage of average daily attendance average daily participation calculated as a percentage of average daily attendance average daily participation calculated as a percentage of average daily attendance number of transactions processed for the food service fund (If data are not available, use total dollar volume of the food service fund.) total revenue of the food service fund III.? Basis of Allocation From School Food Service Fund to School Locations number of personnel served cost of food sold at each location number of hours spent at each school number of transactions processed (If data are not available, use the total dollar volume,) the "size" of each location (Computer services will normally be charged to the school food service fund for accounting services and payroll services. Thus, an allocation to each location should be made based on size. A reasonable basis for allocation is total revenue, line 17 of the income statement, shown in Chapter IV, Figure IV.l.) Type of Service transportation charges training utilities repairs and maintenance professional and technical services Basis of Allocation From Other School District Funds to The School Food Service Fund cost of food service (includes leased or purchased vehicles calulated as a percentage of the total cost of school district vehicles) training only allocated when personnel not assigned to a particular location are involved (In such cases, the total food service direct labor cost is calculated as a percentage of the total school district labor cost should be used as the allocation basis.) number of square feet of occupied floor space number of hours actually used number of hours actually used, dependent upon the type of service purchased (Total direct food service hours calculated as a percentage of total district labor hours is suggested.) III.8 Basis of Allocation From School Food Service Fund to School Locations the number of miles between the school location and the point from which delivery is made (for regular uses, such as delivery of food from a warehouse to preparation sites) (For all other service, use the actual miles or hours used by each location.) only allocated when personnel not assigned to a particular location are involved (In such cases, the direct labor cost at each location should be used.) number of square feet of occupied floor space number of hours actually used dependent upon the type of service purchases (Direct hours at each location are the best basis, but other bases, such as number of meals served at each location, if appropriate, will result in a reasonable allocation.) • .. Type of Service rentals printing and binding miscellaneous Basis of Allocation From Other School District Funds to The School Food Service Fund usually do not require allocation (When they do, the basis depends upon the type of rental involved, e.g., hours of use, space required, number of transactions, and total food service fund revenue. ) a percentage of total school district revenue when it is not a direct charge to a school food service fund a percentage of total school district revenue when it is not a direct charge to a school food service fund Basis of Allocation From School Food Service Fund to School Locations usually will not require allocation (When they do, the basis of allocation depends upon the type of rental involved, e.g., hours of use, space required, total food service fund revenue, number of transactions, etc.) number of direct hours, job basis, or number of pages at each location may be used "total revenue line" (line 17 of income statement) Allocations of purchased services expenses should be made only when no direct charges can be made to individual location accounts. When allocations are made, the basis of allocation is used to determine a particular school location's percentage of indirect cost. Equipment Depreciation In most cases, equipment depreciation expense can be allocated based upon the value of the assets being depreciated. When depreciating assets cannot be charged to individual location accounts, allocation of depreciation is based on utilization of the asset (e.g., miles driven for vehicles) • All Other Costs All other miscellaneous expenses not covered above should be allocated to school locations based on total revenue (line 17 of the income statement). These expenses will be small in relation to total expenses, and such an allocation will result in reasonable charges to each school location account. III.9 ALLOCATION OF COSTS TO PROGRAMS General To facilitate reporting to state agencies and to assist in managing various programs, it is necessary to allocate indirect costs to each of the programs. Since direct labor hours will be accumulated by program, no allocation will be required. In addition to direct labor, cost of food sold will be allocated to programs. All other costs will be allocated to programs only within the fund as a whole. Therefore, data will be available to management on these direct costs for each program at each location and for all costs for each program at the district level. The methods of allocating cost of food sold and other costs are discussed below. Cost of Food Sold To allocate the total cost of food sold for the school district and for each school location, standard meal costs must be used. The standard meal cost is the average expected cost of food sold for a particular type of meal. This standard cost may be based on actual food costs for various types of meals. If such data are not available, the standard cost can be computed from the known market price of the various components of each type of meal. The allocation computations are shown in Figure III.4. A.standard unit cost for each type of meal is estimated. This unit cost is multiplied by the actual number of meals served by program at each school location. By means of this multiplication, the total standard costs for all meals served is calculated. A percentage of program costs at each location is also calculated. This percentage is multiplied by total actual costs to arrive at the cost allocated to each program at each location. The cost for a given location is simply the sum of the costs allocated to the programs at that location. Indirect Costs Indirect costs are allocated to the various programs of the school food service fund in a similar manner to that used to . allocate such costs to locations. This allocation is performed after indirect costs have been allocated from the school district to the school food service fund, as described above. The various bases for allocations to programs are discussed below. Element of Cost labor Basis for Allocation the total direct labor cost assigned to each program (All indirect labor will have to be allocated to programs.) III.lO FIGURE III. 4 ALLOCATION OF COST OF FOOD SOLD TO PROGRAM .ACCOUNTS 1. Sales Breakfasts Type A Lunches Total School A 110 238 348 School B 73 419 492 School C 0 503 503 2. Standard Meal Costs: Breakfast, $.28; Type A Lunch, $.54 3. Total Actual Cost of Food Sold: $703.81 4. Total Standard Cost of Food Sold: (183 X .28) + (1,160 X .54) = $677.64 5. Standard Cost by School by Program: School A School A School B School B School C Breakfast Type A Lunch Breakfast Type A Lunch Type A Lunch (110 X (238 X (73 X (419 X (503 X .28) .54) .28) .54) .54) = $ 30.80 $128.52 = $ 20.44 $226.26 $271.62 6. Percentages of Standard Cost by School by Program: School A School A School B School B School C Breakfast Type A Lunch Breakfast Type A Lunch Type A Lunch 30.80 • 677.64 128.52. 677.64 20.44 • 677.64 226.26. 677.64 271.62. 677.64 7. Cost Allocations by School by Program: School A School A School B School B School C Breakfast Type A Lunch Breakfast Type A Lunch Type A Lunch 4.5% X 703.81 19.0% X 703.81 3.0% X 703.81 33 .4/o X 703.81 40.1% X 703.81 III .11 4.5% = 19.0% 3.0% 33.4% = 40.1% = $ 31.67 $133.72 = $ 21.12 $235.07 = $282.23 Total 183 1.160 1,343 Element of Cost purchased services laundry and linen trash removal extermination accounting services transportation charges training utilities repairs and maintenance professional and technical services Basis for Allocation Some purchased services may be chargeable directly to various programs, and some may be chargeable only to a limited number of programs. The various services are shown below. number of direct labor hours charge to each program costs of food sold charged to each program cost of food sold charged to each program total revenue accumulated for each program cost of food sold charged to each program for transportation charges in the delivery function (Total revenue is accumulted for each program for all other transportation charges.) total number of meals served by each program total number of meals served in each program total number of meals served by each program allocation basis dependent upon the nature of the service (If no other basis is logical, the number of meals served by each program should be used.) III.12 • Element of Cost rentals printing and binding miscellaneous purchased services equipment depreciation other expenses Basis for Allocation for rentals of kitchen equipment, the actual or estimated number of hours used by each program. (For vehicles, the same basis as transportation charges should be used. For other rentals, the total revenue accumulated for each program should be used.) the number of meals served by each program the total revenue accumulated by each program the total number of meals served by each program the total revenue accumulated by each program III.l3 CHAPTER IV OPERATING REPORTS INTRODUCTION This chapter contains detailed instructions on the preparation and use of various operating reports. Operating reports are used internally by school food service fund management and individual cafeteria managers to monitor operations and financial conditions and to assist in preparing reports to local, state, and federal governments. There are several operating reports that will be used by school food service fund managers. The two primary reports are the income statement and the balance sheet. The income statement summarizes financial operations during an accounting period, while the balance sheet summarizes financial conditions at the end of an accounting period. In addition to these two major reports, other operating statisistics and reports wil.l be prepared regularly. All of these are discussed below. The instructions shown in this chapter must be used in conjunction with the procedures described in Chapter III, "Allocation of Costs and Expenses." INCOME STATEMENT Principles of the Income Statement The income statement (or operating statement) is a financial report that summarizes operations during a specific accounting period. It is prepared on the accounting principle of matching costs with revenues and, therefore, shows much more than the change in cash balances. The "Net Profit (or Loss)" line ·of the report is used as an indicator of the current "health" of the school food service fund. Also, other figures on the report, such as "sales" and "cost of food sold," are used in a similar manner. In school food service fund accounting, several income statements are prepared; statements are prepared for each school location, for the fund as a whole, and for each program, and a modified statement is prepared for each program at each school. The income statement for the individual school location is the basic report, and complete instructions for this report are given in this chapter. Instructions for other income statements are based on those for individual schools. Preparing the Income Statement at the School Location Level The income statement is prepared at the end of each month for two different accounting periods, the month just ended and the year-to-date. These two income statements should be prepared immediately after all IV.l transactions for the month have been recorded. (Transactions should be posted to the accounts as soon as possible after the end of the month.) Preparation of the statements should not be delayed because some transactions may be outstanding. In no case should preparation be delayed beyond the tenth calendar day of the next month. If, at the end of a year, a large number of adjusting entries are required, a preliminary report should be prepared by the tenth of the month and revised when final figures are available. In no other case should monthly statements be revised, unless significant changes are required. Transactions for small amounts that appear after statements have been prepared should be included as part of the current (new) accounting period, even though they actually occurred during the previous period. A recommended format for an income statement to be used by a school food service fund or individual cafeteria is shown in Fig-ure IV.l. Each line item for "cost of food sold," "direct labor," and "other expenses" in the report is expressed in terms of dollars and also as a percentage of "total revenue." When using the general ledger account specified for calculating each line of the income statement, the activity for the account during the accounting period must be used unless otherwise specified. The activity is the net change in the account balance during the month (i.e., the ending balance minus the beginning balance). The amount for each line in the income statement is calculated as follows: Line Number 1 2 3 4 5 6 Method of Calculation Enter the sum of the sales to pupils accounts (account 3010), except the special functions account. Enter the sum of the sales to adults accounts (account 3040), except the special functions account. Enter sales in special functions (program account 5) only. Enter the sum of lines 1 to 3. Enter the sum of all price reduction for reduced price and free meal accounts (3110 to 3119). Enter the result of subtracting line 5 from line 4. IV.2 .<H VJ FIGURE IV.l W. P. No. Accountant Date INCOME STATEMENT FOR JANUARY 1972 line No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 Revenue Sa 1 es: To Pupils To Adults Special Functions Gross Sales less: Price Reductions for Reduced Price Meals Net Sales Revenue Federal Revenue: Reimbursements Donated Commodities Revenue from Federal Sources State Revenue: Cash Reimbursements Other Cash Payments Donated Goods and Commodities Revenue from State Sources local Revenue: Transfers Miscellaneous Revenue from Loca