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This appendix describes some techniques appropriate for
introduction at responsibility centres for accruing costs with
respect to goods or services. It also draws attention to the need
to ascertain the adequacy of present automatic payroll
accruals.
(a) Accounting records should be kept primarily on a cash
basis, with month-end accruals being entered when the usefulness
of the reports is thereby improved. A full accrual accounting
system as is frequently found in industry, where most
transactions are entered into the accounting records when the
goods or services are received, will not normally be necessary
for most government departments.
(b) Month-end accrual entries should be automatically reversed
in the following month. In this way, all cash payments can be
processed as direct charges to the responsibility centre, and
there is no need to be concerned whether the individual
transaction was recorded previously as an accrual. In addition,
minor inaccuracies or omissions in determining accruals will
cancel out and thereby not create any difficulties in subsequent
periods.
(a) Managers of responsibility centres should be responsible
for originating accruals and should be provided with a document
for communicating their accruals to accounting offices at the end
of each month. This document should be suitable for direct input
to the accounting system after approval of the manager
concerned.
(b) Procedures should be established in accounting offices to
ensure that all responsibility centres submit an accrual report,
even a nil accrual report, at the end of each month.
(c) For those departments using the departmental reporting
services of Public Works and Government Services, accruals may be
input to the system and will be reversed automatically in the
following month.
(a) The basis for establishing month-end accruals can be
satisfied through the use of an open file of accrual documents.
In the case of goods received, there will generally be a shipment
and/or receiving document and a purchase order available on which
to base an accrual.
(b) When there is a high volume of transactions, as would be
the case for a major stores location or a warehouse, these
documents should be subject to sequential or other accounting
controls. It may be appropriate in such cases to maintain a
control record, with a continuing balance of accruals outstanding
supported by the source documents.
(c) When there is no documentation specifically identifying
the amount to be accrued in the month-end, estimates of
significant amounts owing should be made, particularly in the
case of purchased services. Types of accruals that should be
estimated include significant charges for professional services,
rentals, and travel costs.
(a) In accordance with the procedures outlined in Treasury
Board Circular MI-1-69, dealing with monthly financial reporting
of pay, a month-end accrual/deferral accounting entry is input to
departmental accounting systems, operated by Public Works and
Government Services Canada, automatically through the pay system.
At the end of Period 12, this accrual is also input to the
Central Agencies Information System and the Central Accounts of
Canada. This accrual, which is based on the gross cost of the
most recent bi-weekly salary payroll and on the number of
remaining working days in the month, is incomplete and, depending
on a department's requirements, may be inadequate because:
- the accrual applies only to the regular salary of
indeterminate, full-time, salaried employees and does not include
the pay of casual and hourly employees, which, if required, must
be computed by individual departments;
- the accrual does not include all adjustments, such as
overtime, leave without pay, new employees, terminations, or
other changes in status that occur subsequent to the payroll
date;
- the actual payrolls on which the accrual is based must be
prepared several days in advance of issue and therefore do not
include all adjustments effective prior to the pay date; and
- an accrual based on the normal working days in a month may
not be as useful as one based on a weekly or hourly
time-distribution system or on the working days in the month,
particularly if periodic financial data are to be matched with
non-financial data, such as performance measurements, for
management information purposes.
(b) When these shortcomings are considered significant,
particularly at year-end when the accrual impacts on the
department's appropriation(s), departments should establish
alternative means of accrual accounting for payrolls by
introducing accruals that are accurately computed at the end of
each month, combined with whatever cost-allocation techniques are
necessary.
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