Accounting Practices

This section describes in greater detail some of the journal entries required for service center accounting. It is extremely important that service center income and expenses be recorded correctly using the object codes/expenditure types in Stanford's Chart of Accounts that are appropriate to each type of service center.

1. User Billing

Per Administrative Guide Memo 3.2.3 - Allocations and Offsets:

“1.d. Approvals — Before an allocation journal or feeder is submitted to the financial system, the department processing the journal/feeder must have received approval from an authorized individual for each PTA charged.”

Therefore, a valid account charge number and authorization for work must be provided to the service center prior to allowing user purchase of service center services. 

This authorization allows the center to bill the designated account for services. The authorization remains with the service center as backup for billings.

It is recommended that the service center incorporate into their authorization request form:

•  approval from the person authorized to charge the account
•  a “maximum” or “not to exceed” dollar amount, or explicitly state “unlimited”
•  an end date if it is a sponsored account
•  a list of who is allowed to charge to the account

“Uploads” or “Feeders” are available in Stanford's iJournals system for uploading the large numbers of internal billings. This allows the center to set up its charges on a text formatted spreadsheet, which can then be uploaded directly into iJournals. The service center manager should contact the iJournals Contact for information on using these methods.

Service center charges should be made using the 58320 expenditure type, unless a more descriptive and specific expenditure type exists (e.g. 58820 SU Interdept Chemicals, 58810 SU Interdept Lab Supplies, etc.).

It is helpful to use the same journal description(s) for all regular service center charges. This helps the Controller's office, OSR and RAPC identify billing transactions more readily when searching for data in the accounting system. It is also helpful to include the approved service center rate in the journal description, or the phrase “service center rates approved by RAPC per letter of September 14, 2016.” The time period (month-year) for which services are being billed should also be specified in the journal description.

Additional entries are required for billings to external users. These are described in the section titled "Sales to an External User."

2. Recording Sales

Service centers use the following revenue object codes to record income for their sales to internal users: 48110, 48115, 48120, etc. Some Administrative service centers should use the revenue object codes 48210, 48215, etc. to record intradepartmental sales to themselves (e.g. Communication Services expenditure for their own telephone lines). Use of multiple revenue object codes enables a service center to track its income from various sources or for various services. Journal examples for recording sales can be found in the Table of Appendices and Exhibits – please refer to Exhibit C

Subsidy income should be booked into an object code that the service center reserves for subsidy entries alone; the suggested object code is 48180. Fiscal year end subsidy entries should be posted to 48180 on an iJournal with a description field stating that the entry is a fiscal year end subsidy. If the subsidy entry can be made before year end, i.e. the department has already determined what amount would be allocated to the service center at the beginning or mid-year; the center should post the entry as the funds are available. In addition, the description should state that the entry is a subsidy.

Sales (income) should never be recorded as a credit to an expenditure code. Credits for expenses are only used to record amounts received for returned goods and other expense related adjustments. The improper use of such credit entries will understate both service center revenue and expense in the breakeven calculation. As a result, the service center's rate might have to change unnecessarily to adjust for the larger surplus or deficit that would accumulate and be carried forward that year, and the service center's users would be affected by such rate change, as well as University expenditures being recorded incorrectly.

3. Recording Sales of Inventory Items

Object code 11405 has been assigned as the code to identify items purchased for resale to accounts that are not identified at the time of purchase. The purchases are recorded in the service center’s Project/Award with code 11405 until a sale is recorded against a specific account. When the “sale” is made, the "inventory" account is credited for the cost of the item sold, the “cost of goods sold” expenditure type captures the cost without markup and the service center account is credited for the “cost of goods sold” and the cost associated with selling that item (the markup rate). “Cost of goods” accounting was required to meet the needs of FAIR and accurate posting of interdepartmental sales. For an example of the accounting entry, refer to the "Journal Examples for Service Center Accounting Entries" document in "related items" below.

On very rare occasions the item sold out of "inventory" is capital equipment (fabrication). When this type of item is sold, the charge to the user must be to a capital equipment (fabrication) expenditure type.  For purchases from Stanford Service Centers, use:

• 58671 (Intra-Dept SU Owned Cap Fabrication) or
• 58676 (Intra-Dept Non-SU Owned Cap Fabrication)

 The user is responsible for seeing that the proper procedures for purchasing equipment are followed (e.g., that the purchase order for capital assets requisition is used and not expensed directly to a service center).

4. Documentation of User Charges

Documentation of service center user charges should include the level of activity, the rate used to calculate the charges, and the month for which the charge is incurred. This allows service centers to show their users and auditors that the correct rates were used to calculate the amounts charged on monthly allocation journals. Periodic internal or external audits may be conducted on this documentation. Refer to Administrative Guide memo 3.2.3 section Allocation and Offset Procedures

5. Accounting for Capital Assets Used by Service Centers

Service Centers are not allowed to purchase capital assets. Capital assets cost $5,000 and over. Service centers are only allowed to recover, through their rates, expenses that occur during the fiscal year (for department stores it is based on calendar year). Capital assets have a life of more than one year therefore a capital asset’s total cost may not be expensed in the year of purchase to the service center’s users. The assets with a depreciable life of three, five, ten years, etc may only be charged to the users on a straight line depreciation method over the life of the asset. For example, a microscope with an asset life of five years can only be recovered by a fifth of its total cost per year.

A. Acquisition of Capital Asset Options

1. Obtaining the use of University Capital Funds from Capital Planning and Management – CP&M. Generally the ASM or DFA must contact CP&M to obtain approval for funding before the fiscal year starts.
2. Department Unrestricted/Gift Funds provide the amount required and the service center pays amount back through service rates.
3. Lease – Obtain a lease or “lease to own” purchase order with a vendor who can provide the asset at a reasonable cost. Service Center and or Procurement should perform a lease or buy analysis.
4. Manufacturer Capital Asset Donation

1. Capital Funds – Capital Accounting

If you have already obtained approval for loan funding from Capital Planning & Management (CP&M), your service center will be allowed to utilize the university’s capital funds for the amount approved. It is possible that the loan amount approved will not be sufficient for the asset purchase, in which case additional funding will need to be obtained (it is not permissible to charge a portion of the purchase price directly to the service center).

The Capital Accounting PTA will be charged for the principal amount (purchase price), sales tax and freight (if any). The total amount will be the capitalized and the asset will be amortized based on the capitalized amount.

Amortization is based on the capital asset’s depreciable life. Amortization is the Total Cost divided by the number of depreciable years. Therefore, a $100,000 microscope with an asset life of 5 years plus a freight fee of $500 and sales tax amount of $8,292 would have a monthly amortization amount of $1,813. Total asset cost is $108,792.

Capital Accounting’s Debt Amortization policy provides additional information. Issued Interest charges are allowable for assets purchased by Academic service centers in FY06 forward. The service center can include the interest in the rate to be charged out to users. Or the center could choose to fund the interest amount via department/unrestricted gift funds in order to avoid further increasing the user rate.

Academic service centers must provide a gift or unrestricted account for the “markup unallowable” expense. Markup unallowable expense is the fee charged by Controller’s Office for use of Debt. Administrative service centers can have a few specific unallowable expenses.

1. After obtaining approval from CP&M, complete the Standard Capital Equipment purchase order by charging the asset to the Capital Accounting PTA provided.
2. Answer "Y” to “Will the equipment be used in a service center” question. Provide the service center PTA for re-payment of loan (Amortization PTAEO). If purchase was made in FY06 forward interest may be charged to service center PTA.
3. In the comment section, please provide the PTA for the “markup unallowable” which must be charged to the department’s unrestricted gift or operating fund. Contact Capital Accounting to provide the department PTA or gift unrestricted PTA for the markup unallowable. Administrative service centers can provide their service center PTA for this expense.

All of the following expenditure types are restricted to Controller’s Office use only:
(Refer to Expenditure Type Lookup for additional information on expenditure
descriptions.)

58665 – SU Internal Princ Amortization For principal portion only of debt payments. All depreciation, automotive and other.

58610 – Interdept Int Exp Allow For internal interest charged -- expendable fund pool rate, long-term rate or accounts receivable rate. Ref: UG and A-21. If purchase was made in FY06 forward the interest is allowable to the service center. If the purchase was made prior to FY06, please refer to 58620 - Interdept Int Exp Unallow

58620 - Interdept Interest Exp Unallow For internal interest charged -- expendable fund pool rate, long-term rate or accounts receivable rate. Ref: UG and A-21. If purchase was made prior to FY06 the interest is unallowable to the service center

58630 – Interdept Interest Markup Unallow Recovery of Internal Advances to/from Debt pool. For interest on equipment or for building construction.

Capital Accounting posts the monthly amortization journals as a feeder file with the Source name “DEBT”.

2. Department Funds/Unrestricted Gift Funds

If the department is unable to obtain approval for use of the University’s capital funds or chooses to avoid the “interest” and “markup unallowable” expense, a gift or unrestricted funds may be used for the capital payment. Repayment of the principal as asset depreciation is an allowable service center expense. Keep in mind that increasing the service center rate(s) to recover all or a portion of the asset’s cost may decrease volume due to users possibly being unable to afford the rate.

If the service center has obtained a Government sponsored grant/contract for a capital asset purchase(s), be aware that you may not include the Government sponsored portion of payment into the service center rate. The Government has paid for the asset and does not wish to pay for it again within the service center’s rate.  Note: if the capital purchase is more than 50% paid by Federal Funds, RAPC prefers that the asset’s remaining balance not be recovered via service center rates.    It requires a complicated rationalization to justify why a partially paid asset by non-sponsored funds should be included in the service center rates.   If the asset cost to be recovered is significant to your service center, please contact your RAPC service center analyst.

When using this method of payment, the service center will need to post the monthly depreciation journals themselves. This is not too tedious since iJournals does have a “copy” function and the service centers should already be posting monthly allocation journals.

All capital assets used by a service center must be identified in the Fixed Assets database. Contact the appropriate DPA to ensure that the list of service center’s capital assets is accurate and complete.   A walk through of the process is located in DoResearch – Service Center Manual 4.1

If the service center’s department funded the equipment purchase with the intent of subsidizing the expense in whole or part, then changed their decision in the following fiscal year, than any depreciation expense for the prior year(s) cannot be recovered.
For example:

• a service center purchased and received a microscope in FEB 2016 with department funds. The department decided not to recover depreciation costs within the service center rates
• in SEP 2016 the department requested that the service center recover the depreciation expense for the asset in their service center rate(s)
• the current year depreciation expense may be included in the FY17 Budget Submission but it may not collect expense for prior year (in this case it may not recover the FEB 2016 – AUG 2016 depreciation).

The equipment depreciation journal will need to provide adequate information for any audit questions:

• Journal Title: should identify it as a Department purchased Capital Asset with MON-YR depreciation being charged to Service Center.
• Journal Description: should document that the asset was purchased by Department for use in the Service Center and include: Vendor Name, PO number, Total Cost (if multiple PTA posted payment than provide a breakdown by %), Depreciable Life, Month-Yr asset in service, and Asset Description.
• Journal line: should be for the month of depreciation posted, include PO number as Dept. Ref, and provide Asset Description.

DEBIT 58504 – Interdept Deprec Cap Equip Depreciation of Department funded capital asset recovered via Service Center by inclusion of expense in service rate(s).
Debit to Service Center PTA
CREDIT 481XX – Interdept Revenue Revenue posted via interdepartmental recovery.
Credit to Department Fund PTA (If multiple there are department unrestricted/gift funds than list each with appropriate %

3. Lease Capital Asset

If the two options above are not available, the service center may obtain a lease for the capital asset required in the service center

When the PO is submitted, Procurement may generate a lease vs. own analysis in order to ensure that the University is obtaining a fair return for its dollar. If there is a lease to own option available, ensure that the buyout amount will be less than $5,000 or the asset will be considered capital and the buyout cost may not be paid by the service center.

Lease expense is an allowable cost to include in the service center’s rate(s).

4. Manufacturer Capital Asset Donation

A service center may receive equipment donated by the manufacturer.  By donating equipment to Stanford the manufacturer’s benefits include the opportunity to have its newly developed equipment tested by Stanford University faculty, PIs, etc.; the equipment value could be used in the manufacturer’s tax deductions (if ownership has been granted to Stanford University), or the manufacturer may request that equipment be acknowledged in any published research papers.

Service centers can decide to include all or part of the equipment donation’s value as a depreciable expense within in the service center rate(s). The donator has to have transferred title ownership of asset to Stanford University before asset depreciation can be charged to users. (Manufacturer asset/equipment loans to Stanford University are not depreciable.) The journal process would be similar to option 2, except that the PTA receiving the credit will be the Department’s unrestricted/gift fund.

Keep in mind that the inclusion of donated asset depreciation expense will increase the service center rate(s) and could discourage users from utilizing the service center. The service center has the option of only including a portion of the depreciation as opposed to the entire amount allowable.

Journal information should be well documented. Ensure that the asset donation value is posted to the Department Gift/Unrestricted Fund in order to offset the income collected within the service center rates.

DEBIT 58504 – Interdept Deprec Cap Equip Depreciation of Department funded capital asset recovered via Service Center by inclusion of expense in service rate(s).
Debit to Service Center PTA

CREDIT 481XX – Interdept Revenue Revenue posted via interdepartmental recovery.
Credit to Department’s Gift/Unrestricted Fund

If you have any questions, please contact your designated Service Center Analyst.

6. Prepayments

Prepayments for Service Center services should be rare and for extraordinary cases only.  If an internal Stanford user requests to prepay for services, please request them to work with their School of Medicine Research Management Group, or the Office of Sponsored Research Institutional Officials, to secure written approval from the Sponsor’s Grants Management Specialist and/or Authorized Official, before accepting prepayment.  The written approval from the Sponsor must be attached to the service request (iLab service request or manual service request) for audit trail.

Revenue must not be recognized by the service center for prepayments until services are completed.  Prepayments must be credited to unearned income until the services to the grant are completed, and recognize revenue (billings to customers) as and when the services are completed.

Journal entries for prepayment to service centers:

A. To Record Prepayment:

Debit:  11530 PREPAID EXPENSE AUX SER CTR - User's PTA

Credit:  21630 UNEARNED INCOME - AUX & SVC CTRS - Service Center PTA

B. When Invoicing the Customer Upon Completion of Service Pertaining to the Prepayment:

Debit:  58xxx - User's PTA

Credit: 48xxx - Service Center PTA

Debit:  21630 PREPAID EXPENSE AUX SER CTR - Service Center PTA (same amount as invoice above)

Credit:  11530 UNEARNED INCOME - AUX & SVC CTR -User's PTA (same amount as invoiced above)