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CHAPTER 4.1.4
GAAP ADJUSTMENTS AND RECLASSIFICATION ENTRIES
ASSETS: PREPAID EXPENSES AND OTHER ASSETS
1
GAAP POLICIES AND PROCEDURES
PREPAID E XPENSES AND OTHER CURRENT ASSETS
Prepaid expenses are goods or services paid for and recorded in advance of their use or
consumption in the course of business, which represent expenses for the next fiscal year and,
therefore, should properly be reported as a current asset at June 30.
Typical types of prepaid expenses in most business entities include insurance, rent, and multiperiod service contracts. CSU campuses should analyze expenses, and consider the following
items:
 Library subscriptions or periodicals
 Multi-year equipment service contracts
 Significant amounts of postage purchases, especially near year-end
 Any types of advance paid to a third party or employee
Similar to prepaid expenses, inventories on the Statement of Net Position (SNP) represent
items purchased but not yet used in the course of business by year-end. These inventory items
represent an expense of a future period and, therefore, should properly be reported as a current
assets at June 30.
For legal-basis accounting, campuses generally expense all inventoriable items. For GAAP
financial reporting purposes, a determination of the amount of inventoriable goods on hand at
June 30 needs to be made by each campus. In order to make this determination, campuses will
need to identify potentially significant inventories. Also, each campus must determine if the
aggregate cost of its inventory at June 30 is material.
Note that the $5,000 capitalization threshold for capital assets would not apply to individual
items of inventory. Rather, the cost of all inventory items in the aggregate should be used
in assessing materiality.
The following are some common locations on campus where inventory may be located:
 Plant operations (various maintenance items)
 Campus bookstores
 State stores (campus office supplies)
 Health center and pharmacy (medicines and supplies)
 Print shop and computer center (quantities of paper and printing supplies)
 Campus newspaper or radio station offices
4.01.4-1
GAAP Manual | GAAP Adjustments and Reclassification Entries – Assets: Prepaid
Expenses and Other Assets | June 30, 2017
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OTHER ASSETS (NONCURRENT ASSETS )
Other assets include noncurrent minor assets that do not naturally fit into any of the main asset
categories.
2
RELEVANT ACCOUNTING LITERATURE
GASB Statement No. 34, Basic Financial Statements and Management’s Discussion and
Analysis for State and Local Governments, paragraph 225 and Appendix D covers the reporting
and treatment of expenses including prepaid insurance.
3
OBJECTIVES OF GAAP ADJUSTMENTS
The objectives of the GAAP adjustments that may be necessary at June 30 are as follows:
PREPAID E XPENSES AND OTHER CURRENT ASSETS
 To amortize the beginning prepaid expenses and other current assets for the portion
consumed or used during the current fiscal year (see Example 1 below).
 To identify and record expenses for goods or services paid in the current fiscal year with
future economic benefits as prepaid expenses and other current assets (see Example 1
below).
 To identify and record expenses relating to inventory-type items purchased in the current
fiscal year but not used at June 30 as prepaid expenses and other current assets (see
Example 2 below).
OTHER ASSETS (NONCURRENT )
 To identify and record expenses for goods or services relating to future periods with longterm economic benefits as other assets (see Example 3 below).
 To reclassify current portion to prepaid expenses and other assets account for portion to be
consumed or used in the next fiscal year (see Example 3 below).
 To reclassify account balances that automatically derived to other assets account to the
appropriate GAAP account (see Example 4 below).
Certain campuses elected to book the above adjustment in the legal basis books (based on
the business process followed by the campus). If this is the case, then no GAAP adjustment
is further required.
4.01.4-2
GAAP Manual | GAAP Adjustments and Reclassification Entries – Assets: Prepaid
Expenses and Other Assets | June 30, 2017
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4
GAAP ACCOUNTING T REATMENT AND JOURNAL ENTRIES
4.1 RELATED GAAP ACCOUNT(S)
711107 - Prepaid expenses and other current assets
711208 - Other assets (noncurrent)
4.2 PREPAID E XPENSES
At year-end, an analysis should be performed and entries should be made to record
prepaid expenses and other current assets as current assets on the SNP.
Example
At the end of the current fiscal year, the campus determined that prepaid expenses for the
CSU operating fund totaled $1,200,000. At the end of the prior fiscal year, the campus
recorded an adjustment for prepaid CSU operating fund expenses in its GAAP basis
financial statements in an amount totaling $1,000,000.
Fund
(Net Position)
881-Unrestricted
Account
722004*
Account Name
Supplies and other services
722004*
Supplies and other services
881-Unrestricted
06
485
$400,000
Prepaid expenses and other
881-Unrestricted
90
485
($1,000,000)
current assets
Entry to amortize the beginning prepaid expenses and other current assets for the portion
consumed or used during the current fiscal year.
711107
Journal
Description
Program
04
Class
(CSU
Fund)
485
Amount
$600,000
*Expenses (various) by functional and natural classifications
Account
711107
722004*
722004*
Journal
Description
Fund
(Net Position)
Program
Class
(CSU
Fund)
Amount
Account Name
Prepaid expenses and current
other assets
Supplies and other services
881-Unrestricted
90
485
$1,200,000
881-Unrestricted
04
485
($700,000)
Supplies and other services
881-Unrestricted
06
485
($500,000)
Entry to properly set-up prepaid expenses as of year-end.
*Expenses (various) by functional and natural classifications
4.01.4-3
GAAP Manual | GAAP Adjustments and Reclassification Entries – Assets: Prepaid
Expenses and Other Assets | June 30, 2017
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4.3 OTHER CURRENT ASSETS
Other current assets include “inventories” which are collections of goods maintained for
use or for sale and should be recorded as assets if the amounts are material. Inventories
for use may be maintained by a physical plant department, central stores or other
departments. Inventories for sale may be maintained by bookstores or food service
operations.
There are two commonly used systems of inventory maintenance for purposes of
determining the appropriate level of inventory which are described as follows:
 Periodic
Inventory is determined by a physical count as of a specific date. The inventory
shown on the SNP is determined by a physical count as of the end of the fiscal year.
 Perpetual
Inventory is determined based on inventory records that are maintained and updated
on a regular basis. This system has the advantage of providing inventory information
on a timely basis but requires the maintenance of a full set of inventory records.
GAAP requires that a physical count of inventory be made periodically in order to
verify the perpetual inventory records. Campuses may use either method to account
for their inventory. However, records should be maintained as supporting source
documentation of the cost of the inventory at June 30. If it is determined by the
campus that the aggregate cost of the inventory is not material, no additional work or
journal entries will be necessary. If the cost is material, the campus will need to record
entries to recognize existing inventories at June 30 as assets on the SNP. If a date
other than June 30 is used to determine the value of inventory (i.e. May 31) the
campus should analyze their June purchases and uses to determine if an adjustment
to their May 31 calculation is required.
Example
At the end of the current year, the campus determined that inventory purchased from
CSU operating fund sources totaled $2,000,000. At the end of the prior year, the campus
recorded an adjustment for CSU operating fund inventory in its GAAP basis financial
statements in an amount totaling $1,800,000.
Account
722004*
Account Name
Supplies and other services
722004*
Supplies and other services
Prepaid expenses and other
current assets
711107
Journal
Description
Program
01
Class
(CSU
Fund)
485
Amount
$800,000
881-Unrestricted
04
485
$1,000,000
881-Unrestricted
90
485
($1,800,000)
Fund
(Net Position)
881-Unrestricted
Entry to record inventory consumed in the current year.
*Expenses (various) by functional and natural classifications
4.01.4-4
GAAP Manual | GAAP Adjustments and Reclassification Entries – Assets: Prepaid
Expenses and Other Assets | June 30, 2017
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Account
711107
722004*
722004*
Journal
Description
Account Name
Prepaid expenses and other
current assets
Supplies and other services
Supplies and other services
Program
Class
(CSU
Fund)
881-Unrestricted
90
485
$2,000,000
881-Unrestricted
01
485
($900,000)
881-Unrestricted
04
485
($1,100,000)
Fund
(Net Position)
Amount
Entry to set-up inventory balance as prepaid expenses and other current assets as of year-end.
*Expenses (various) by functional and natural classifications
4.4 OTHER ASSETS (NONCURRENT )
Example
One April 01, 20X0, the campus paid $24,000 for a two-year insurance coverage which
will run from April 01, 20X0 to March 31, 20X2. At June 30, 20X0, unused prepaid
insurance expense of $21,000 (21 month: July 01, 20X0 to June 30, 20X2) will be split
into two parts. The current asset portion will be for the 12 months after June 30, 20X0
(July 01, 20X0 to June 30, 20X1). The noncurrent asset portion will be for the 9 months
for the period after June 30, 20X1 (July 01, 20X1 to March 31, 20X2).
The GAAP basis accounting adjusting entries at June 30, 20X0
Account
Program
Class
(CSU
Fund)
881-Unrestricted
90
441
$12,000
881-Unrestricted
90
441
$9,000
881-Unrestricted
01
441
($10,500)
Fund
(Net Position)
711208
Account Name
Prepaid expenses and other
current assets
Other assets (noncurrent)
722004(a)
Supplies and other services
722004(a)
Journal
Description
Supplies and other services
881-Unrestricted
04
441
($10,500)
Entry to reclassify derived insurance payment to prepaid expenses (current portion) and
other assets (noncurrent portion).
711107
(a)
Amount
Object code 660010, Insurance Premium Expense, derives to 724004, Supplies and Other Services.
The GAAP basis accounting adjusting entries at June 30, 20X1
Account
722004
Account Name
Supplies and other services
722004
Supplies and other services
Prepaid expenses and other
current assets (current
711107
Journal
Description
4.01.4-5
Fund
(Net Position)
881-Unrestricted
Program
01
Class
(CSU
Fund)
441
881-Unrestricted
04
441
$6,000
881-Unrestricted
90
441
($12,000)
Entry to recognize the insurance expense consumed in the current fiscal year.
GAAP Manual | GAAP Adjustments and Reclassification Entries – Assets: Prepaid
Expenses and Other Assets | June 30, 2017
Amount
$6,000
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Account
711107
711208
Journal
Description
Account Name
Prepaid expenses and other
assets (current)
Fund
(Net Position)
Program
Class
(CSU
Fund)
881-Unrestricted
90
441
Amount
$9,000
Other assets (noncurrent)
881-Unrestricted
90
441
($9,000)
Entry to reclassify current portion of the insurance to prepaid expenses for the coverage will
be used in the next fiscal year.
Example
Below is an example of the GAAP adjusting entries to reclassify balances automatically
deriving to account 711208, other assets into the appropriate account. In this example,
the collection of notes receivable was derived to 711208, other assets, as such a
reclassification in GAAP is required.
Account
711208(b)
711110
Journal
Description
(b)
5
Account Name
Other assets
Notes receivable, current
portion
Fund
(Net Position)
881-Unrestricted
Program
90
Class
(CSU
Fund)
496
881-Unrestricted
90
496
Amount
$95,000
($95,000)
Entry to reclassify derived collection of notes receivable.
Object code 109004, Loans Receivable-Other, derives to 711208, Other assets
REFERENCE TOOLS
5.1 TABLES OF OBJECT CODE AND CSU FUND DEFINITIONS
Appendix 19, Table of Object Code Definition/Table of CSU Fund Definitions and
Authorities
5.2 FIRMS DATA ELEMENT DICTIONARY
FIRMS Data Element Dictionary
4.01.4-6
GAAP Manual | GAAP Adjustments and Reclassification Entries – Assets: Prepaid
Expenses and Other Assets | June 30, 2017
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REVISION CONTROL
Document Title:
CHAPTER 4.1.4 – GAAP ADJUSTMENTS AND RECLASSIFICATION ENTRIES
– ASSETS: PREPAID EXPENSES AND OTHER ASSETS
REVISION AND APPROVAL HISTORY
Section(s)
Revised
General
4.01.4-7
Revision
Date
Summary of Revisions
Previously in Chapter 4.6
April 2015
GAAP Manual | GAAP Adjustments and Reclassification Entries – Assets: Prepaid
Expenses and Other Assets | June 30, 2017