Auxiliary Standard Operating Procedures


SUBJECT:

Automated Payroll Accruals

SOURCE:

Auxiliary Accounting, Financial Management Services

DATE ISSUED:

April 2005

DATE OF LAST REVISION:

November 2008

ASOP NO:

9.0

RATIONALE:

To comply with Generally Accepted Accounting Principles (GAAP).  The payroll accrual will recognize payroll expense for work performed in a given month but not paid until the following month. For example, the December monthly payroll is paid on the first working day of January. This occurs so that the current month’s financial statements are fairly stated, satisfying the matching principle1. It is appropriate to estimate amounts when accruing expenses if actual amounts would cause an unnecessary delay in preparing management reports. This includes salaries and wages (accrued monthly), accrued sick time (accrued annually), and accrued vacation time (accrued annually).

ASOP:

Conditions:

  • Bi-weekly payroll is paid two weeks after the bi-weekly pay period in which the work has been performed. This creates a need to accrue some payroll expense each month for all university accounts. This is automatically accrued to the general ledger.
  • Monthly payroll is generally paid in the same month the work is performed. However, when payday falls in the following month, the posting of the payroll expenses to the general ledger will automatically be accrued (see Posting of Payroll Expense to the General Ledger below).

 

Object Codes:

9050 is used to accrue unpaid payroll

9056 is used to accrue vacation time

9058 is used to accrue sick time

 

Automation:


Group

Pay Run ID

Off Cycle?

Pay Period Begin Date

Pay Period End

Vouchers Available

Job Pay Flag

Voucher Cutoff

Close Date

Check Date

Fiscal
Period

Fiscal
Year

BW1

B016052005

N

4/24/2005

5/7/2005

5/5/2005

5/10/2005

5/12/2005

5/13/2005

5/20/2005

11

2005

BW1

B018060305

N

5/8/2005

5/21/2005

5/19/2005

5/24/2005

5/26/2005

5/27/2005

6/3/2005

12

2005

BW1

B019061705

N

5/22/2005

6/4/2005

6/2/2005

6/7/2005

6/9/2005

6/10/2005

6/17/2005

12

2005


For example:


Based on the payroll calendar above, bi-weekly payroll B018060305 has a period end date of 05/21/2005 (fiscal period 11). However, the payroll is posted on06/03/2005(fiscal period 12) even though the entire payroll was earned in May (10 working days).  Therefore, an accrual entry is required for this payroll.

 

Bi-weekly payroll B019061705 has a period end date of06/04/2005and is also posted as a June payroll.  Of the 10 working days covered by this payroll, 7 days are earned in May and 3 days are earned in June.  Again, an accrual entry is required for this payroll.

 

For the May monthly operating statements, payroll expenses will be accrued for the 17 working days earned in May but not posted until June.  The amount of the accrual will be estimated, based upon the last available bi-weekly payroll processed in the month of May.  In this example the base for the accrual estimate will be bi-weekly payroll B016052005.

 

The formula for determining amounts for accrual:

 

Last Biweekly Payroll

of the Period

X

          Number of Days to Accrue        

Number of Days in Biweekly Pay Period

 

The accrual will automatically reverse in the following month when the actual payroll is posted.

 

Only the earn codes selected as “Y” will be included in the bi-weekly payroll accrual calculation. The following diagram shows the earn codes selected by the program:

 

Earn Code

Description

Selected Y/N

RGN

Bi-weekly

Y

RGH

Regular & Student Hourly

Y

RGP

PERF Hourly

Y

OOR

Overtime Only Hourly

N

HRW

Work-study Hourly

N

 

These earn codes are designated “Y” or “N” by FMS Administration.  For bi-weekly staff leave earn types are also accrued – sick, vacation, military, injury, etc.

 

Currently overpayments, cancellations, and hand-drawns are processed with off-cycle payrolls and would be excluded. Also, clearing account expenses and supplemental pays are excluded from the calculation. At this time, retroactive adjustments processed with bi-weekly payrolls would be included in the payroll accrual calculation.

 

When generating the accounting entries, the program will list as part of the document number the payrolls that are being accrued and reversed. 

 

Accruals are posted with a document type of “PAYA” and reversed using document type “PAYN”. Both of these document types have an offset object code of 9050 and do not affect cash.

To prevent overdrafts and to retain the budget to actual to encumbrance comparison, payroll accruals and reversals are accompanied by offsetting encumbrance transactions “PAYE”:

 

Automated Example Accruals for May:


Automated Example Accruals - 01 - ASOP 9.0.png


The accrual estimate records payroll expenses in the month earned.

 

Example Reversals for June:


Automated Example Reversals - 02 - ASOP 9.0.png


The accrual reversals offset the actual payroll expenses that will be booked by HRMS/PeopleSoft when the payrolls are posted in June.

 

All of these entries are automatically recorded, each month, in the KFS. However, the formula used to calculate these accruals uses averages and assumptions. Therefore, sometimes the calculated estimate can be significantly different from the actual at the departmental level. If the difference is significant, the auxiliary can correct these accruals by submitting an Auxiliary Voucher Accrual (AVAE).

 

How to access labor accrual details by person:

 

Labor accrual details by person can be obtained by following the steps as identified here:

 

1) Log on to IUIE

2) Access the Labor Ledger Entry report by taking the following steps

      a) IUIE / Kuali Financials / Labor / Labor Ledger Entry View

Note: If you do not have access to the report, the link for the report will appear grayed out. To get access:

  • Click on the grayed out Labor Ledger Entry report link to bring up a request access form
  • Enter an appropriate justification for requesting access in the space provided.
  • If applicable to your needs, select the check-box for ‘All-Campuses-System Wide’ to get report data for all campuses
  • Click on Request Access button
  • You will receive an e-mail when you have been granted access

3) Once access is obtained, you can go to the Labor Ledger Entry report using the same steps in IUIE as above and run the report with the following parameters:

 

Parameters:


Chart of Accounts Code: The org’s chart code

Account Number: Account number(s) for analysis if needed

Organization Code: The organization code

Document Type Code: PAYA

Financial Balance Type Code: AC

University Fiscal Year: Fiscal year for analysis

University Fiscal Period: Fiscal period for analysis

Output Destination: Wait for Output

Select Columns to Include: All Columns

Maximum Number of Rows to Return: No Limit

 

The resulting report should contain labor accrual details by person.

 

Note: If the report fails to run the first time, try again. Many factors can affect a failure to run, including volume of data in the requested report, and volume of requests being sent by other users.

DEFINITIONS:

Earn Code - A category of pay indicating what an employee is being paid for, which defines the calculation of pay [e.g. RGA (Regular Academic), SCK (Sick Nonexempt), FNL (Funeral), VAC (Vacation), OVT (overtime); RGN (Regular Pay Nonexempt Biweekly), etc.].

CROSS

REFERENCE:

 

ASOP 3.0 - Accruing vs Adjusting Entries - Auxiliary Voucher Use

RESPONSIBLE

ORGANIZATION:

 

Auxiliary Accounting, Financial Management Services

1 The matching principle means that revenues generated and expenses incurred in generating those revenues should be reported in the same income statement.  Revenues for an accounting period are recognized in accordance with the realization principle.  Then the expenses incurred in generating those revenues are determined in accordance with the matching principle.  Thus, expenses are reported in the income statement for the accounting period in which the related revenues are recognized.”  (Intermediate Accounting, by Chasteen, Flaherty, and O’Conner; 1992; McGraw-Hill, Inc.; p.60).