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Overview
Scenario
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Scenario
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Scenario
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Scenario
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July 29, 1996
MEMORANDUM No. NCAS-97-0003
To: Chief Fiscal Officers
From: Chuck Cooper
Assistant State Controller
Subject: Refund of Expenditures Procedure
Attached is a new procedure for processing refunds of expenditure in the North Carolina Accounting System (NCAS). This procedure has been developed to provide a consistent method for agencies to handle these situations. With this procedure, the Accounts Payable (AP) module is used to record all refunds.
Four scenarios are presented in the procedure with examples of the transactions required to address each situation. In each scenario the agency will post to the vendor refund clearing account (535680). During nightly processing, the NCAS will automatically generate the entries to credit the clearing account and debit the appropriate allotment cash account. When the prior fiscal year is involved, the agency may also need to establish a reimbursement account (5383AA) specifically for prior year reimbursements.
This refund procedure using AP is required for any refunds received after July 31, 1996. Additionally all refunds since January 1, 1996 that need 1099 adjustments and have already been recorded using the journal entry process in the Budgetary Control Module (BC) of the NCAS must be reversed and reentered in AP. This procedure is effective August 1, 1996.
If you have any questions, please contact your OSC Systems Accountant at 733-0178 or the OSC Help Desk at 875-HELP.
cc/aes
A refund of expenditure should be recorded in the Accounts Payable (AP) module of NCAS by using zero dollar invoices. (See NCAS procedures for zero dollar invoices). The invoice should contain one line to back out the refund amount and another line to post the refund to the Vendor Refund Clearing Account (535680). During nightly processing, entries would be generated that reverse the entry in the Vendor Refund Clearing Account and post to the appropriate cash account.
System generated Accounting Rules will determine the appropriate cash entries based on the fund type which is contained in the first position of center. The accounting rules used will be:
- AP-30 for 1 type funds
- AP-C0 for 4 type funds
- AP-D0 for all other funds
The BD800 will correctly reflect the cash transaction because of the system generated document ID.
PROCEDURE
There are multiple situations that could occur with refunds. The four scenarios described below use a general fund accounting distribution in the following four cases:
- Scenario 1: Refund of a current year expenditure
- Scenario 2: Refund of a prior year expenditure
- Scenario 3: Accrued refund of a prior year expenditure
- Scenario 4: Combination -- Refund of a current year expenditure / Accrued refund of a prior year expenditure
Scenario 1: Refund of current year expenditure
In this situation, the refund occurred during the current year and requires an adjustment to the original distribution account. The agency would perform the following steps:
- Add a line to the invoice that backs out the refunded amount.
- Add another line to post the refund to the Vendor Refund Clearing Account.
Agency issued a check to a vendor for $500 for Natural Gas/Propane -- Utility/Energy Services (account 532220). The vendor issued a refund check to the agency for $100 during the same fiscal year.
In the Accounts Payable (AP) module.
- 1. Complete CDE screen following
standard NCAS procedures for a zero dollar check. Be sure and use ZRO in
the BAP (BANK ACCT PYMT IND) field.
2. Use the same vendor as the original invoice. Add an invoice line to back out (credit) the refunded amount. In this example, -100.00 would be charged to account 532220. This is the same account that was used on the original invoice.
3. Add an invoice line to post $100 (debit) to 535680 -- Vendor Refund Clearing Account.
4. Type NEXT in the REQUEST field and BAL the control group.
During nightly processing, the system creates the standard entries from the accounts payable system. The additional entries are generated from the special accounting rules established for the refunds. In this scenario, the accounting rule used is AP-30 since the transaction is recorded in a general fund and these are the resulting entries:
- CR- 535680 for $100
- DR- Allotment cash account for $100
Scenario 2: Refund of prior year expenditure
A refund of a prior year requires the refund distribution to be recorded against a refund account (5383AA). Before an agency can add the invoice in AP, it must ensure that a reimbursement account has been established within NCAS to handle prior year reimbursements. The account should be in the 5383AA account range, and the account title should designate this account for prior year reimbursements only.
Example:
An agency issued a check to a vendor for $500 for Natural Gas/Propane -- Utility/Energy Services (account 532220) during the previous year. The vendor issues a refund check to the agency for $100 during the next fiscal year.
In the Accounts Payable (AP) module:
- 1. Complete CDE following
standard NCAS procedures for zero dollar checks. Be sure and use ZRO in
the BAP (BANK ACCT PYMT IND) field.
2. Use the same vendor as the original invoice. Add a line to the invoice that credits the prior year reimbursement account (5383AA) for the amount of the refund. In this example, -100.00 would be charged to account 538301.
3. Add an invoice line to post $100 (debit) to 535680 -- Vendor Refund Clearing Account.
4. Type NEXT in the REQUEST field and BAL the control group.
During nightly processing, the system creates the standard entries from the accounts payable system. The additional entries are generated from the special accounting rules established for the refunds. In this scenario, the accounting rule used is AP-30 since the transaction is recorded in a general fund and these are the resulting entries:
- CR- 535680 for $100
- DR- Allotment cash account for $100
Scenario 3: Refund of prior year expenditure - Accrual
Under modified accrual accounting, revenues are recognized when earned. Therefore, any refund of expenditure which was identified and earned prior to June 30 and received prior to July 31 must be accrued. The procedure is similar to Scenario 2 since the refund is for a prior year expenditure. The additional requirement is to reflect this transaction as an accrual using the accrual indicator (ARC) with the credit entry. ARC indicator is tied to account 113200 for accrual purposes and must be distributed through a Budgetary Control journal entry to the appropriate receivable account at a later time.
Example:
Agency issued a check to a vendor for $500 for Natural Gas/Propane -- Utility/Energy Services (account 532220). The vendor notified the agency in June that it would be issuing a refund check to the agency for $100. The agency received a refund check for $100 during July.
In the Accounts Payable (AP) module:
- 1. Complete CDE following
standard NCAS procedures for zero dollar checks. Be sure and use ZRO in
the BAP (BANK ACCT PYMT IND) field.
2. Use the same vendor as the original invoice. Add a line to the invoice that credits the prior year reimbursement account (5383AA) for the amount of the refund and include the accrual indicator ARC in the EXP field. Credit account 538301 for -$100 the same as in the above example.
3. Add an invoice line to post $100 (debit) to 535680 -- Vendor Refund Clearing Account.
4. Type NEXT in the REQUEST field and BAL the control group.
During nightly processing, the system creates the standard entries from the accounts payable system. The additional entries are generated from the special accounting rules established for the refunds. In this scenario, the accounting rule used is AP-30 since the transaction is recorded in a general fund and these are the resulting entries:
- CR- 535680 for $100
- DR- Allotment cash account for $100
In some circumstances, an agency may receive a refund that needs to be split between the current year and the previous year. Some of the refund may be a prior year refund and eligible for accrual, but the remainder of the reimbursement needs to be treated as a current year refund of expenditure. In this case, there will need to be 2 credit entries -- one to the expenditure account for the current year amount and one to the prior year reimbursement account.
Example:
Agency issued a check to a vendor for $500 for Natural Gas/Propane -- Utility/Energy Services (account 532220). The vendor notified the agency in June that it would be issuing a refund check to the agency for $100. The agency received a refund check for $150 during July which contained an additional $50 to be applied against the current year.
In the Accounts Payable (AP) module:
- 1. Complete CDE following
standard NCAS procedures. Be sure and use ZRO in the BAP (BANK ACCT PYMT
IND) field.
2. Use the same vendor as the original invoice. Add a line to the invoice that credits the prior year reimbursement account (5383AA) for $100 which is the amount of the prior year refund and includes the accrual indicator ARC in the EXP field.
3. Add a line to the invoice that credits the expenditure account (532220) for $50, which is the current year refund.
4. Add an invoice line to post $150 to 535680 -- Vendor Refund Clearing Account.
5. Type NEXT in the REQUEST field and BAL the control group.
During nightly processing, the system creates the standard entries from the accounts payable system. The additional entries are generated from the special accounting rules established for the refunds. In this scenario, the accounting rule used is AP-30 since the transaction is recorded in a general fund and these are the resulting entries:
- CR- 535680 for $150
- DR- Allotment cash account for $150