§015a. (CB) Accounts Payable

Accounts Payable

The term accounts receivable is not a budgetary term but rather an accounting term. It is an amount that is owed by the Federal Government to some other entity for services rendered or material provided, but for which payment has not been made. This is a term used by the Government Accountability Office in its operations and appears in its Glossary of Terms, but is not defined in budget-related statute.

GAO Glossary of Terms and Definitions (September 2005)

Accounts Payable

Amounts owed by a federal agency for goods and services received from, progress in contract performance made by, and rents due to other entities. This is a proprietary (or financial) accounting term. For balance sheet reporting purposes, according to OMB Circular No. A-11 “accounts payable” consists of the amount owed by the reporting entity for goods and services received from other entities, progress in contract performance made by other entities, and rents due to other entities. (See also Accounts Receivable; Proprietary Accounting; app. III.)

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Federal Accounting Standards Advisory Board Handbook

FASAB Handbook of Federal Accounting Standards and Other Pronouncements, as Amended as of June 30, 2016

Interpretations 1-7 Technical Bulletins Technical Releases 1-16

Staff Implementation Guidance

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Introduction

Accounts Payable

74. Accounts payable are amounts owed by a federal entity for goods and services received from, progress in contract performance made by, and rents due to other entities.

75. Accounts payable are not intended to include liabilities related to on-going continuous expenses such as employees’ salary and benefits, which are covered by other current liabilities. (See recommended standard for Other Current Liabilities).

76. Amounts owed for goods or services received from federal entities represent intragovernmental transactions and should be reported separately from amounts owed to the public.

77. When an entity accepts title to goods, whether the goods are delivered or in transit, the entity should recognize a liability for the unpaid amount of the goods. If invoices for those goods are not available when financial statements are prepared, the amounts owed should be estimated.

78. When a contractor provides the government with goods that are also suitable for sale to others, the liability usually arises when the contractor physically delivers the goods and the government receives them and takes formal title. However, when a contractor builds or manufactures facilities or equipment to the government’s specifications, formal acceptance of the products by the government is not the determining factor for accounting recognition. Constructive or de facto receipt occurs in each accounting period, in accordance with the following paragraph.

79. For facilities or equipment constructed or manufactured by contractors or grantees according to agreements or contract specifications, amounts recorded as payable should be based on an estimate of work completed under the contract or the The estimate of such amounts should be based primarily on the federal entity’s engineering and management evaluation of actual performance progress and incurred costs.

80. The reporting entity should disclose accounts payable not covered by budgetary resources.

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Appendix A: Basis Of The Board’s Conclusions

Accounts Payable

151. Accounts payable are set up to record an entity’s liability for goods and services received or work progress made by a contractor for which payment has not been made.

152. Some respondents questioned the timing of recognizing a liability in accounts payable. A federal entity, under budgetary accounting, records an obligation when the entity places a purchase order or signs a contract. An obligation, once incurred, reduces an entity’s resources available for obligation. Budgetary accounting entries are required to record the amounts obligated and to reduce the available budget authority. For financial reporting purposes, liabilities are recognized when goods and services are received or are recognized based on an estimate of work completed under a contract or agreement.

153. Some federal entities believe it is appropriate to recognize a liability in accounts payable when a purchase order is placed. The theory of this practice is that the purchase order represents a use of the entity’s budgetary resources and that recognizing the liability would correctly reduce the entity’s available budgetary resources.

154. Proponents for this practice also argue that, in many cases, goods produced under government contracts bear unique specifications for government needs and, as a result, cannot be sold to other customers. Thus, they argue that it is virtually certain that the government has incurred a liability toward the contractor.

155. The Board recognizes that there is a need to reconcile budget execution results and financial In budgetary accounting, when a purchase order is placed, an obligation is recorded to ensure budgetary control. However, recognition of the claim from a financial accounting standpoint does not occur until goods are delivered, work progress is actually made by a contractor, or services are performed since these events generally trigger a cash outlay that liquidates the obligation. The Board does not believe that recognizing a liability prior to a actual receipt or constructive receipt of goods or services should be adopted as a financial accounting standard. It also does not believe that it is appropriate to erase the distinction between recording obligations for budget purposes and recognizing a liability for financial accounting purposes.

156. Some respondents question whether a liability should be recognized for multi-year contracts that are to be financed through appropriations over a number of years. As has been discussed earlier, when a contract is entered, an obligation is recognized in budgetary accounting. However, until goods or services are received or work progress is made, the Board does not believe that an obligation should be recognized as a liability. When goods or services are received or work progress is made under either a short or long-term contract, a liability for unpaid amounts should be recognized.

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