School food service financial management handbook for uniform accounting : complete system

              •
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
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•
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
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•
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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
...
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Chapter
IV
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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
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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
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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
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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
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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