I'm not a CPA and I'm new to this forum. I work in IT supporting a
student account office at a University in the US. We've recently changed
IT systems and a consultant has recommended to us that we not produce
traditional bills or invoices for accounts. Rather, they recommend we
send periodic electronic letters notifying students they have due balances
and/or 30-day past due balances and/or 60-day, 90-day, etc. All of these
correspondances direct the student to their online account with all
activity. There is no stated due amount on any of the correspondances.
I'm wondering if this is going to be an audit point in some way with GAAP.
Anyone with more knowledge than mine on GAAP and what requirments there
may be to produce a formal bill/invoice on an account to present to a
customer (electronic or paper)?
Thanks in advance.
Is this a for profit, publicly traded University? If not, then it does not
need to follow GAAP. That being said, you would want to design an
invoice/statement template that makes it easy for the student to understand
and easy for the university to collect the funds. Not including statement
balances defeats these ideals.
To hold a pen is to be at war. --Voltaire
It's a public University, but part of a state system, and I'm quite sure
that while GAAP may not strictly required, the state legislature and
others have a general expectation that the fiscals are being managed to
the prevailing professional standards. Thanks for your reply. Does this
information change your response in any way?
This is a public University part of a larger state university system.
While that may mean they don't strictly fall under GAAP, I know that they
use GAAP as a general guideline in their business activities. Thank you
for your reply. Does this information change your response in any way?
I'm really wondering what the GAAP standards are with regards to the
notion of billing/invoicing.
There is no GAAP standard for what an invoice should contain. That falls
into the UCC (Uniform Commercial Code) area of business law. Accounting
majors usually have to take two business law classes, so I remember this
from those classes.
GAAP would be involved with the amounts and semester dates on the invoice
for proper revenue recognition. For example, if the school wanted to follow
GAAP, it could not recognize the tuition as revenue until after the
semester is completed. It can, however, record the cash as soon as it gets
payment from students. The reasoning behind this is that the school still
"owes" a service (teaching) when the student pays early in the semester.
Capitol Beat: According to Bob Woodward, China donated secret cash to
the White House in 1996. "This gives Clinton the nickname he needs to
Assuming they follow GAAP's accrual based accounting, I would say that they
could not do so. They are still obligated to perform the service despite
the refund policy. GAAP requires that the service must be completed before
revenue is recognized. However, this does not mean that they cannot use the
tuition cash flow for their operational expenses until after the semester
has ended. This is just a recording requirement.
The airline and periodical subscription industries are two other examples
of companies that are paid in advance for services they provide later. On
the other hand, long term construction companies do not have to wait until
the end to recognize the revenue. They can recognize a percentage of the
total revenue as each partial stage is completed and billed.
Remember this, foolish mortals, when ye stare headlong into the
mind-paralyzing void, the inky black nothingness of existence,
Thank you, this is extremely helpful. I'll pursue further within UCC on
this matter. I totally get what you're saying about GAAP and recording of
revenue. I'm still very concerned we may be at risk in terms of audit and
perhaps, even more so now, legally, by not having a bill and/or invoice
generated and sent through one means or another to the student/customer
that doesn't contain the basics of 1) balance of the account from the
prior bill/invoice, 2) summary and/or detail transaction activity on the
account since the prior bill/invoice, 3) current balance due on the
account given this recognized new activity.
Again, thanks for the added information on the requirements/code on which
to base and substantiate my concerns to those above me.
You likely got this point from former responses, but GAAP is concerned
more with how transactions are recorded for the purposes of generating
financial statements. It is not as concerned with processes such as
invoicing, what GL system you use, how the invoice looks, etc.
That said, solid processes are the foundation of solid financial
statements so it's good you are chasing this down.
Universities that produce audited financial statements follow GAAP (or
OCBOA). Because nearly all universities issue bonds and/or seek donations, the stakeholders expect audited financials.
=A0 =A0 =A0--Voltaire
I know this post was 5 years ago but I would agree you can't due this but it has
to due more with the reconciliation process by AR therefore sound business
processes. Sound accounting controls to reduce errors but also to prevent fraud
should have AR tying each payment to a specific invoice. Therefore not having
invoices you can't have an aging report to know how far out or late a payment
is. Also there will be cases were a check can go to pay more than one invoice
and sometimes that might be partial payment. Not know which check is against
which invoice makes bank reconciliation of accounts that AR effects a lot
harder. Basically you are just asking for trouble and are going to make errors
a lot. Itt really is going to be a lot harder to catch mistakes like apply a
payment against a wrong account. This is bascily IT being lazy and trying to
save money or the accounting system you bought not being correct designed in the
first place. Spend the money up front because there is nothing more to tick off
students than getting there accounts wrong because you have poor validation
controls on student accounts. Trust me you will spend a lot less money in the
long run doing it right verse having a work around that is a lot more prone to
errors. So basically tell IT you can't dictate bad accounting practices to the
accounting department because you probably will end up tracking all of this via
an excel sheet when your accounting system should due this.