Double Entry Types of Balance Sheet

Although this liability is only a "paper entry" and is reversed at the beginning of the next fiscal year, you should verify that the amount recorded as a liability to your fund is the appropriate amount.

Deferred Deferred revenue represents prepayments received from your

Revenue customers. Since you owe your customers the goods or services that you will provide i

n the future, you cannot claim to fully "own" the cash they have paid to you. The liability "deferred revenue" shows a record of the cash you have received but for which you have not yet provided the corresponding goods or services.

When you provide the goods or services to the customer, amounts in deferred revenue should be transferred to revenues. There should be zero dollars in deferred revenue once all the goods or services have been provided.

You should track your deferred revenue for the following reasons:

1. To see how much of your cash is potentially refundable to others.

2. To ensure that all balances are "current" (represent only amounts for goods or services not yet provided to customers).

3. EQUITY CREDIT balance shows positive equity. DEBIT balance shows negative equity.

Equity The equity, net worth or fund balance of your fund represents the assets the fund owns, less any liabilities owed to others.

Equity also represents the cumulative effect of all revenues, expenses and transfers posted to the fund since its inception.

It is an important measure of the value of your fund. Equity should always be positive.

Equity "with" Because the cash on your balance sheet does not take into Encumbrances accountany encumbrances, your equity (assets minus liabilities) does not take them into account either. Consequently, the balance sheet gives you an additional figure labeled "equity with encumbrances," meaning "equity with encumbrances subtracted." When this figure is positive it shows a credit balance, following the same pattern as equity.

The balance sheet gives you this view of your equity so that you can see what equity would be if all the cash that is currently committed were already spent. As you review this figure, bear in mind the following:

1. Some commitments are firmer than others. For example, a salary commitment for a Classified Civil Service employee will certainly be used, unless the person leaves or reduces work hours. On the other hand, if you have a blanket purchase order, you might have established it for a maximum amount, planning to spend that amount only if absolutely necessary. The first encumbrance is "firm," the second less so. Consequently, you must know your operation well in order to interpret "equity with encumbrances."

2. Depending on the type of fund, monies are received at different points during the year. For example, Endowment Income and Expense funds receive the major portion of their funding in July. Earnings funds, on the other hand, usually receive revenues at regular intervals during the year. Thus an Endowment Income and Expense fund that has negative "equity with encumbrances" in the early part of the fiscal year is probably of concern, whereas an Earnings fund can begin the year with negative "equity less encumbrances" because it will earn money during the year to offset the commitment

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