Accounting procedures

4 questions answered through the accounting process

• Allocations
  o How much money is there to spend?
  Starts from the beginning of the year
• Encumbrance (Commitment)
  o How much will a purchase probably cost?
  o Orders not yet received, over estimate rather than under estimate
• Payment
  o How much is actually spent
• Unencumbered (Uncommitted Balance)
  o How much money is left?

Typical fiscal years

• April – March (government and public libraries)
• January – December (corporate libraries)
  o Lots of work
  o Budget needs to be spent in its entirely by December 31
  o If the budget isn’t used in its entirely, it could be cut the following year
• July – June (academic and school libraries)

Reasons for practicing good accounting procedures

• Stay within the budget
• Provide assistance in the budget planning process
• Create a clear audit trail (all transactions from PO to final payment tracked)
  o Don’t rely on a parent organization to keep track of budget thoroughly
• Good relations with the finance department and vendors

Reasons for monitoring library’s finances

• Basis for preparing next year’s budget
• Information needed for annual report
• Provides factual background for purchasing decisions
• Allows comparison with other libraries

Types of allocations/expenses

• Capital allocations/expenses
  o usually used for items such as equipment which are considered assets by an auditor
  o furniture
• Operating allocations/expenses
  o used for consumables, e.g. supplies, books, films

Acquisitions cycle

The vendor has a record of estimates and encumberates. The approved invoice needs to be initialed by a library worker to say it is okay and that it can be authorized.

Encumbering (Committing)

• Placing a hold on funds needed to pay for items when they arrive at a future date
  o set aside, don’t spend on anything else
• Funds which are encumbered can be released only when
  o item is received and paid for
  o order is cancelled
     * The money is taken out of one column and placed into another.

Fund accounting

• Accounting system based on collection of separate funds

Maintenance of accounts

• Expenditures are tracked for each fund account
• Totals are updated for the following
  o encumbrances
  o payments
  o free balances
  o allocation usually remains the same for the entire fiscal year

Bookkeeping equation

• Allocations = Liabilities + Fund Balances
• In library acquisitions, this translates to:
• Fund allocation = Encumbrances + Payments + Unencumbered balance

Accounts

Beginning of year

Allocation = encumbrances + payments + unencumbered balance

$12,000.00 = .00 + .00 + $12,000

* At any time of the year, in an ideal situation, encumbrances, payments and unencumbered balances will equal up to the total allocation.

Mid-year

$12,000.00 = $3,000.00 + $4,000.00 + $5,000.00

End of fiscal year

$12,000.00 = .00 + $12,000.00 + .00

Fund accounting

Fund #	Allocation	PO #	Encumberance	Payment	Unencumbered balance
2450	$12,000.00		$632.99	$0.00	$11,637.01
2450-BK
	$6,000.00	1	$85.00		$5,915.00
		2	$95.00		$5,820.00
		3	$125.00		$5,695.00
Total	$6,000.00		$305.00	$0.00	$5,695.00
2450-CD
	$5,000.00	4	$0.00	$199.99	$4,801.01
		5	$0.00	$25.00	$4,775.01
		6	$50.00		$4,725.01
Total	$5,000.00		$50.00	$224.99	$4,725.01
2450-PE	$1,000.00				$1,000.00
		7	$55.00		$945.00
Total	$1,000.00		$55.00		$945.00