Financial Information Strategy Accounting Manual

Assets are economic resources controlled by a government as a result of past transactions or events and from which future economic benefits may be obtained.

Assets appear on a Department's Statement of Financial Position, and they are divided into either of two categories, Financial Assets and Non-Financial Assets.

Financial assets are those assets on hand at the end of an accounting period, which are expected to be turned into cash. They are not intended for consumption in the normal course of operations. Examples of these assets include cash, accounts receivables, loans and advances, inventories held for resale, etc.

Non-financial Assets are assets that have economic lives that may extend beyond the accounting period and are intended for consumption in the normal course of operations. They generally are converted into expenses in future periods. Examples of these assets include capital assets, inventories of supplies, and prepayments, including transfer prepayments.

3.1 Cash

From a departmental perspective, "cash" includes cash on hand, cash in transit, and cash on deposit.

It should be noted that the main focus of the "cash" component would be that of a typical department's day-to-day handling of public money to the credit of the Receiver General for Canada. Cash related entries specific to the Receiver General for Canada and foreign currency cash will not be addressed in this manual.

The Department receives a $25,000 cheque in the mail from a customer for services rendered by the Department.

FRA coding rationale: (PS 1500.49-51) - The Department records the cash as being in hand awaiting deposit to a Chartered Bank. The credit entry offset is to either a revenue item or against accounts receivable.

Authority coding rationale: The authority code is "R300-All other assets and liabilities". Although there is no impact on the authority side for "cash", the system requires that a code be used.

Object coding rationale: To record the net impact on Cash Accounts, 5299 would be used.

FRA coding rationale: (TBAS 1.1, PS 1500.49-51) - The Department deposits the cash in a Chartered Bank and records the cash as being in transit to RG. The credit entry offset is to reflect the transfer from "in hands" to that of being "in transit" to the RG.

Authority coding rationale: The authority code is "R300-All other assets and liabilities". Although there is no impact on the authority side for "cash", the system requires that a code be used.

Object coding rationale: To record the net impact on Cash Accounts, 5299 would be used.

3) Department receives notification from the RG confirming that cash has been sent from the Chartered Bank to the Bank of Canada.

** DDD: Department number

FRA coding rationale: (PS 1500.49-51) - The Department records the cash as being received by the RG resulting in the offset debit entry being reflected in the Cash Deposit Control Account.

Authority coding rationale: The authority code is 0000 for the "Cash Deposit Control Account" and "R300-All other assets and liabilities" for Deposits in Transit to RG. There is no impact on the authority side for "cash" but the system requires that a code be used.

Object coding rationale: All RG interface Control Accounts are zero filled (0000), with the exception of I/S Control Accounts, at the object level. To record the net impact on Cash Accounts, 5299 would be used.

*** Note: If the Department books cash at time of deposit to a Chartered Bank then the entry would be a combination of the Scenario A 2) DR entry and the Scenario A 1) CR entry identified above.

2) Department receives notification from the RG confirming that cash has been sent from the Chartered Bank to the Bank of Canada.

The Department receives a $500 cheque in the mail from a supplier with a note indicating it had been overpaid by this amount.

1) Department receives $500 from a supplier, it is discovered this is an overpayment.

FRA coding rationale: (PS 1500.49-51) - The Department records the cash as being in hand awaiting deposit to a Chartered Bank. The credit entry offset is to Operating expenses since this amount had been originally charged as an expense. The GST - refundable account is charged for portion of GST which was overpaid.

Authority coding rationale: The authority code is "R300-All other assets and liabilities". There is no impact on the authority side for "cash" but the system requires that a code be used. Since GST does not affect a departmental appropriation, it is recorded to a special authority, G111. ¥ If the money is received in the same year as the overpayment was made, it would be necessary to credit the correct appropriation, e.g. B11A - operating vote or B12A - program vote. However, if the money is received in a year after it was charged to the appropriation then the credit entry should be made to "D311-Other statutory non-tax revenue - refund of a prior years expenditures".

Object coding rationale: To record the net impact on Cash Accounts, 5299 would be used. The GST must be reflected by using "8171-Payment of GST on purchases". ¤ For the credit side, the appropriate economic object would be used depending on the nature of the good or service in question. Note: if the authority code used is D311 and your system cannot handle the use of an expense object code with a revenue authority code, object "4711 - Refunds of expenditures pertaining to purchased operating goods " may be used.

The expectation is that all cash would be cleared and deposited at year-end. Therefore, with possible minor exceptions, there should be no cash shown in the Department's Statement of Financial Position as at 31 March (TBAS 1.2).

3.2 Receivables

Receivables are financial assets in the form of claims held against customers and others for money, goods, or services. Receivables include accounts receivables, loans receivables and accountable advances.

Receivables should be valued at net realizable value, which is the net amount expected to be received in cash, which is not necessarily the amount legally receivable. Determining net realizable value requires an estimation of uncollectible receivables. When it is deemed that receivables are not collectible, they are to be written off. Readers should refer to Section 3.2.4 on Debt Deletions.

Receivables are classified as a financial asset on the Statement of Financial Position.

3.2.1 Accounts Receivable

Accounts receivable are classified as short-term receivables that are normally, but not necessarily, expected to be collected within a year. This section does not include receivables for tax revenue, as tax revenue transactions are not covered in the Accounting Manual.

Accounts receivable may include trade and non-trade receivables. The former represents amounts owed by customers for goods sold and services rendered as part of normal business operations. The latter arises from a variety of transactions including return on investments (dividends), interest income, and refund of overpayments and recoveries.

Accrued receivables should be set up for estimated amounts for goods or services rendered but not recorded at the end of each month, for any material amounts. These should be subsequently reversed when definitive amounts are known, at which time an accounts receivable would be set up, or at the beginning of the next month depending on a department's system.

Accounts receivable should be valued at net realizable value, which is the net amount expected to be received in cash, which is not necessarily the amount legally receivable. Determining net realizable value requires an estimation of uncollectible receivables

An allowance for bad debts can either be established as a percentage of accounts receivable or by setting up an aging schedule.

The department sells information products to an outside party for $500. (Assume the Department does not have respendable revenue or vote netting authority). Examples for vote netting are shown in Scenario B of the section on Revenues.

1) Department sell information products to an outside party for $500. They have not paid for the goods at this point.

(Assumption: Sale takes place in Ontario. See section on Sales Tax for rules on sales tax with respect to sales in other provinces.)

See Scenario A Journal entry 1 for FRA, Authority and Object Rationales in the Revenue Section of the manual.

The entries for the settlement for GST payable can be found in the section related to Sales Tax.

The entries related to the settlement of PST payable (which is treated like any trade payable) can be found in the Accounts Payable Section of the manual.

Further entries related to cash can be found in the Cash Section of the manual.

FRA coding rationale: At this point the outside party has paid the department thereby reversing the accounts receivable and increasing the Department's "Cash in hands of Depts. (awaiting deposit to RG)" holdings.

Authority coding rationale: There is no effect on appropriations with respect to the settlement of the accounts receivable therefore R300 is used.

Object coding rationale: To record the net impact on Cash Accounts, 5299 would be used. To indicate the net impact on accounts receivable"5399-Net Change to Accounts Receivable" is used.

Using past experience, a Department can estimate the percentage of its outstanding receivables that will likely become uncollectible, without identifying specific accounts. The percentage of receivables may be applied using one composite rate that reflects an estimate of the uncollectible receivables or by setting up an aging schedule and applying a different percentage based on past experience to the various age categories.

Based on an aging schedule the Department sets up an Allowance for Doubtful accounts for $10,000.

FRA coding rationale: When allowances for doubtful accounts are recorded, a bad debt expense is recorded at the same time. The allowance for doubtful accounts is a valuation account (i.e. contra asset) and is subtracted from the gross amount of the accounts receivable on the "Statement of Financial Position".

Authority code rationale: Since the establishment of an allowance for doubtful accounts does not impact appropriations, F codes are used. "F122-Allowances set up for bad debt expenses" is used for the Bad debt expense and "F412-Changes to allowances for doubtful accounts" is used for Allowance for doubtful accounts.

Object rationale: There is no effect on objects when the allowance for doubtful accounts is set up. Bad debt expense is a non-cash expense, therefore it falls under standard object 12 and sub-category 34. The economic object used for bad expense is 3462. For non-cash items related to assets and liabilities, sub-category 70 is used. 7021 is used for Allowance for doubtful accounts.

FRA coding rationale: An account receivable should be written off as soon as it is known to be uncollectible. The balance is removed from the books by debiting Allowance for Doubtful Accounts and crediting Accounts receivable - non-tax revenue

Authority code rationale: There is no effect on appropriations. Since the expenditures related to the products that were sold were originally charged to a budgetary vote (operating, program, capital vote etc), there is no requirement to get it off the books via a budgetary appropriation since it has already been charged to a budgetary appropriation. Consequently, there is no effect on appropriations. R300 is used for accounts receivable and "F412-Changes to allowances for doubtful accounts" is used for Allowance for doubtful accounts. Notwithstanding that an appropriation is not required, Treasury Board approval may still be required. See section 25 of the FAA and sections 4 and 5 of the Debt Write-off Regulations.

Object rationale: Since there is a net change to accounts receivable, "5399-Net Change to Accounts Receivable" would be used. For non-cash items related to assets and liabilities, sub-category 70 is used. 7021 is used for Allowance for doubtful accounts.

Six months later a collection is made on the receivable that is written off ($300).

1a) Re-establish receivable

FRA coding rationale: The first step is to re-establish the accounts receivable. Debiting the account receivable and crediting the allowance for doubtful accounts accomplishes this.

Authority code rationale: There is no affect on appropriations. Therefore, R300 is used for accounts receivable and "F412-Changes to allowances for doubtful accounts" is used for Allowance for doubtful accounts.

Object rationale: Since there is an adjustment to accounts receivable, "5399-Net Change to Accounts Receivable" would be used. 7021 is used for Allowance for doubtful accounts.

1b) Record collection

FRA coding rationale: The cash holdings of the department are increased due to the customer remittance. The accounts receivable is reduced by an equivalent amount.

Authority code rationale: There is no affect on appropriations. Therefore, R300 is used for accounts receivable and Cash in Hands of Department awaiting deposit to RG.

Object rationale: To record the net impact on Cash Accounts, 5299 would be used. The net change to account receivable due to a payment by a customer is coded to 5399-"Net Change to Accounts Receivable ".

Accounts receivable are to be recorded in the Statement of Financial Position under the heading Financial Assets grouped into Receivables. Receivables are stated at amounts expected to be ultimately realized i.e. net of the allowance for doubtful accounts.

3.2.2 Loans Receivable - General

A loan receivable is a financial asset of a government (the lender) represented by a promise by a borrower to repay a specific amount, at a specified time or times, or on demand, usually with interest but not necessarily.

The terms of a loan agreement describe when a loan is due. The terms may specify a calendar date or dates for repayment, or may describe the particular time(s) or circumstance(s) which will determine repayment. For example, repayment may be contingent on future events, such as commodity prices or operating results. (PS 3050.07)

A loan receivable should be recognized on a government's statement of financial position when:

This normally coincides with the disbursement of funds, exchange of other assets, or assumption of liabilities. (PS 3050.26)

A loan receivable should be removed from a government's statement of financial position when it has been repaid, the risks and rewards associated with the loan have been transferred, the right to repayment has expired or been waived, or it is written off. (PS 3050.28)

For the purposes of Write-offs and Allowances, there are two types of loans receivables:

For accrual accounting purposes, when the amount of a loss is known with sufficient precision, and there is no realistic prospect of recovery, the loan receivable should be reduced by the amount of that loss. (PS 3050.38)

For authority accounting purposes, loans receivables that were charged to a non-budgetary appropriation would require a charge to a budgetary appropriation when the loan is to written off (see Scenario B). Whereas, loans receivables that were originally charged to a budgetary appropriation are not charged to an appropriation at the time of write-off.

It should be noted that Departments will not set-up an allowance for uncollectible loans receivables (for those loans charged to a non-budgetary appropriation). This will be done centrally by Treasury Board Secretariat. However, as requested, Departments will provide TBS all the necessary information required to determine the provision even though they will not record the transaction in their books.

In the case of loans receivables charged to budgetary appropriation, departments will be responsible for setting up an allowance for those loans they deem to be uncollectible.

Department makes a loan of $500,000 to an organization to finance the construction of exhibition buildings. The loan bears interest at a rate of 6% per annum, and is repayable in monthly instalments at the end of every month over a 5-year period. (There are no concessionary terms related to this Scenario ).

Authority Coding Rationale: H/G* Regular loan receivables are charged to non-budgetary appropriations. In this case H201 would be appropriate but, depending on the situation the appropriation charged could be either a non-statutory Loan vote HXXX, or a Statutory Loan vote GXXX.

Object Rationale: "5010 - Acquisition of loans with cash" should be used for establishing the loan receivable. "6299 - Net Increase or Decrease to Other Liability accounts" should be used to indicate the establishment of the accounts payable.

FRA Coding Rationale: As interest is earned on the loan the loan amount it is recognized periodically as revenue for the period. In this case, interest revenue and interest receivable is recorded monthly. However, depending on the department's materiality level the interest may be recorded less frequently. The amount of interest calculated in the first month is as follows: $2,500 =$500,000 x (6%/12months).

Authority Coding Rationale: There is no impact on authorities with respect to interest receivable, therefore R300 would be used. Interest revenue from loans will be recorded in E500.

Object Rationale: "4804 - Interest on loans and advances from other domestic private sector enterprises" would be used to record interest revenue from the loan. To indicate the net impact on the accrued interest receivable "5399 - Net Change to Accounts Receivable is used.

FRA Coding Rationale: As loan repayments are made, the cash holdings of the Department are increased. This is reflected by a debit to the Cash in Hands of Departments awaiting deposit to RG. The outstanding amount of the loan receivable is also reduced. When the interest is paid, the accrued interest receivable is reversed. The amount of loan repayment is: $9,666.40 = $7,166.40 (principal portion) + $2,500 (interest portion). These amounts are derived using a loan calculation program.

Authority Coding Rationale: H/G*, the repayment of the loan should be credited back against the appropriation it was originally charged in order for departments to complete the Source and Disposition of Authorities in Volume II Part I of the Public Accounts. Crediting the repayment back to the original loan appropriations does not give departments the authority to respend that amount for further loans. Any authority to issue further loans from the repayments would have to be determined from the specific loan authority granted to the department by the government. If there is no impact on authorities as the loan gets repaid, R300 can be used for both the loans receivable and the accrued interest receivable. Since there is no impact on the authority side for cash, R300 is used.

Object Rationale: The Department records the cash as being received by the RG resulting in the offset debit entry being reflected in the Cash Deposit Control Account. As the loan is repaid "5015 - Settlement of loans with cash" is used. To indicate the net impact on the accrued interest receivable "5399 - Net Change to Accounts Receivable is used. To record the net impact on cash accounts "5299 - Net Increase or Decrease in Cash Accounts" should be used.

The Department has determined that $50,000 of the loan issued will not be collectible, and will therefore have to be written off. The department has obtained the appropriate approval to write-off the loan.

FRA coding rationale: A loan receivable should be written off as soon as it is known to be uncollectible. The balance is removed from the books by debiting Bad Debt Expense and crediting Loans Receivable. A charge is made directly to Bad Debt Expense since the department does not set up an allowance for doubtful loans with respect to those loans

Authority code rationale: Since the loan receivable was originally charged to a non-budgetary appropriation, a write-off would require a charge to a budgetary appropriation. In order to write-off the loan receivable, a charge to "B161-Debt write-offs" would be made. However, this code would only apply to non-statutory loans that are given out. B162 would be used if the debt was forgiven. As well, Parliamentary approval would be required to write-off the debt. With respect to write-offs the credit side of the transaction is coded with an "F" code. For further information, please refer to 3.2.4 on Debt Deletions.

Object rationale: The economic object to use is "3215- Deletion and write-off of loans, investments and advances" if the loan is written-off or "3217- Forgiveness of loans, investments and advances" if it is forgiven. The write-off of a loan would require that "5021- Write-off of loans" be used.

Loans receivable should be disclosed under the heading Financial Assets in the Department's Statement of Financial Position.

In describing the accounting policies selected by a government and applied to its loans receivable, Departments should disclose:

Departmental financial statements should disclose the nature and terms of significant classes of loans receivable, including:

repayment terms;
interest terms;
a description of forgiveness and other conditions attached to the loans; and
security held for the class of loans; and

Unconditional Repayable Contributions (URCs) are contributions that must be repaid without qualification. The contribution agreement contains specific repayment terms that set out the time and amount of payment(s) due.

Unconditionally repayable contributions (URCs) are, in substance, loans. Consequently, they shall be accounted for in accordance with PS 3050 Loans Receivables and will be classified and reported as "Loans, investments and advances - transfers".

In cases where the URC has significant concessionary terms, such as a low or no interest rate, it shall be accounted for in accordance with PS 3050.20.

Appropriate valuation allowances shall be recorded for URC receivable by the Department to reflect collectibility and risk of loss. As well, Departments will record write-offs of uncollectible loans.

The Department gives an unconditional repayable contribution (URC) to Doe's Widget Manufacturing Co. of $192,000 (this is for subsidy assistance) on June 1, 2001. The terms of the agreement are that the company must repay the full amount in 48 equal monthly payments of $4000 commencing 1 June 2004 at zero percent interest. The Department has determined that the terms of the loan result in a grant portion that is greater than 25% of the repayable contribution.

1) To record disbursement of $192,000 Doe's Widget Manufacturing Co on June 1, 2001.

FRA Coding Rationale: As per PS 3050.24, the loan is recorded at its face value discounted by the amount of the grant portion. The face value ($192,000) is made up of two parts, the principal and the interest foregone. The interest is equal to the unamortized discount, which also represents the grant portion of the contribution in this Scenario . The unamortized discount of $48,279.90 is calculated by discounting the loan payment of $192,000 using the Consolidated Revenue Fund Lending Rate, assumed to be 6%. Since $48,279.90 is greater than 25% of the repayable contribution of $192,000 (i.e. $48,000), the grant portion must be recorded as a transfer payment expense.

$192,000 represents the future value of the loan since this is the total amount the recipient must repay ($4,000 x 48 payments). Therefore, this amount must be discounted to determine the net present value of the loan. Due to the structure of the loan payments, the discounting is somewhat complicated.

It is assumed that the loan repayments of $4,000 are made at the beginning of each month. Therefore, a factor that represents the present value of an annuity due would be used, (PVIFA Due). The factor used in this part of the calculation would be 42.7932 (PVIFA Due for 48 periods at .005%).

The amount of the unamortized discount would be the difference between the face value of the loan and the discounted value of the loan.

The unamortized Discount on Transfers represents the grant portion and is a contra asset to the Loans Receivable - URC account. These two items are netted to produce the requisite balance required for the statement of financial position. The interest free portion of the loan is concessionary and is more in the nature of a grant, therefore that portion should be recognized as an expense. As a result, the $48,279.90 is debited to Transfer Payment Expense. Since the face value of the loan is what the Department is lending to the company, $192,000 is recorded as a payable.

Authority Coding Rationale: In this example an URC payment is charged to a budgetary vote that being B15A(*) - Grant and Contribution vote but depending on the department's vote structure, B11A - Program Vote could be used as well. Since accounts payable has no impact on appropriations, R300 is used. The concept of the concessionary terms resulting in a grant portion is strictly an accrual concept. This does not impact authorities, therefore F codes are used for both the Transfer Payment Expense and Unamortized Discount on Transfers.

Object Rationale: "6299 - Net Increase or Decrease to Other Liability accounts" should be used to indicate the establishment of the accounts payable. "2151 - Recoverable subsidy payments to industry" is used at this point to indicate the disbursement of the transfer payment. The concept of the concessionary terms resulting in a grant portion is strictly an accrual concept. This does not impact authorities, therefore the same object code is used for the expense and the unamortized discount, "3453 - Recognition of unamortized expenses related an asset".

FRA Coding Rationale: In accordance with PS 3050.24, the amount of the loan discount should be amortized to revenue in a rational and systematic manner over the term of the loan. For administrative ease, it is suggested that the unamortized discount be amortized on a straight-line basis over the term of the loan. The amount in the contra asset account (Unamortized Discount on RC) is reallocated to the "Amortization of Discounts on Repayable Contributions" account, which serves as the revenue account. The loan covers a period of seven years or 84 months (36 months with no payments plus 48 months of payments). The unamortized discount on the repayable contribution would be amortized over the period of the loan. The monthly rate would be $574.76 ($48,279.90 / 84 months). At 31 March 2002, an amount of $5,747.60 (10 months x $574.76) would be amortized.

Authority Coding Rationale: This is strictly an accrual entry. There is no impact on authorities, therefore only F codes are used.

Object Rationale: This is strictly an accrual entry. There is no impact on objects, therefore the same object code is used on both sides of the entry, "7099 - Net increases or decrease in Other transactions".

FRA Coding Rationale: As the loan is paid back the Cash in the Hands of Depts awaiting deposit to RG is debited and the loan receivable is reduced by the corresponding amount.

Authority Coding Rationale: As the loan gets repaid the repayments hit the miscellaneous non-tax revenue authority, E500, as these amounts are credited as revenues for authority purposes. Since there is no impact on the authority side for cash, R300 is used.

Object Rationale: As the loan is paid back the objects need to reflect the repayment, "2151 - Recoverable subsidy payments to industry" is used, as this is a repayment of an amount. To record the net impact on cash accounts "5299 - Net Increase or Decrease in Cash Accounts" should be used.

Using past experience, a Department can estimate the percentage of its outstanding loans that will likely become uncollectible. The percentage of loans receivables may be applied using one composite rate that reflects an estimate of the uncollectible loan receivables. (Please note, this Scenario is completely independent from Scenario A)

The Department has estimated that $50,000 will be uncollectible with respect to these unconditional repayable contributions.

FRA coding rationale: When allowances for doubtful loans are recorded, a bad debt expense is recorded at the same time. The allowance for doubtful loans is a valuation account (i.e. contra asset) and is subtracted from the gross amount of the Loans receivable on the "Statement of Financial Position".

Authority code rationale: Since the establishment of an allowance for doubtful loans does not impact appropriations, F codes are used. "F122 - Allowances set up for bad debt expenses" is used for the Bad debt expense and "F412 - Changes to allowances for doubtful accounts" is used for Allowance for doubtful loans.

Object rationale: There is no impact on objects when the allowance for doubtful accounts is set up. Bad debt expense is a non-cash expense, therefore it falls under standard object 12 and sub-category 34. The economic object used for bad expense is 3462. For non-cash items related to assets and liabilities, sub-category 70 is used. 7021 is used for Allowance for Valuation of financial claims.

The Department has a URC with concessionary terms on their books with a value of $20,000 and unamortized discount of $2,000. This loan is considered uncollectible and is written off.

FRA coding rationale: An URC should be written off as soon as it is known to be uncollectible. The balance is removed from the books by debiting Allowance for Doubtful Loans, crediting Loans Receivable - URC and debiting any remaining Unamortized Discount on Transfers.

Authority code rationale: There is no effect on appropriations. Since the URC contribution was originally charged to a budgetary vote (grant and contribution or program vote), there is no requirement to get it off the books via a budgetary appropriation since it has already been charged to the budgetary appropriation. Consequently, there is no effect on appropriations. Therefore, R300 is used for loans receivable-URC, "F322 - Unamortized Discount on repayable contributions" is used for the unamortized discount on Transfers" and F412 - Changes to allowances for doubtful accounts" is used for Allowance for doubtful loans. Notwithstanding that an appropriation is not effected, Treasury Board approval may still be required. See section 25 of the FAA and sections 4 and 5 of the Debt Write-off Regulations.

Object rationale: "5021 - Write-off of loans" is used to indicate write-off of a loan receivable. For non-cash items related to assets and liabilities, sub-category 70 is used. 7021 is used for Allowance for valuation of Financial claims and 7099 is used for Unamortized Discount on Transfers.

Loans receivable should be disclosed net of unamortized discount and allowance for bad loans under the heading Financial Assets in the Department's Statement of Financial Position.

In describing the accounting policies selected by a government and applied to its loans receivable, Departments should disclose:

Departmental financial statements should disclose the nature and terms of significant classes of loans receivable, including:

repayment terms;
interest terms;
a description of forgiveness and other conditions attached to the loans; and
security held for the class of loans; and

3.2.3 Accountable Advances

This section is provided as a guide for the accounting of Accountable Advances issued pursuant to section 38 of the FAA and the Accountable Advance Regulations. It does not apply to payments made in advance in accordance with section 34(b) of the FAA.

The accounting treatment shown hereunder does not apply to DND since it has its own Working Capital Advance Appropriation. For DFAIT, the accounting treatment does not apply to its own loan votes L11 or L12.

Accountable advances are broken into two categories, each of which is accounted for differently.

Generally, Standing Advances include advances for such things as petty cash, change funds and standing advances for travel whereas Temporary Advances are primarily temporary advances for individual trips.

Standing Advances are recorded directly against PWGSC Loan Vote L15b Appropriation Act No. 3, 1990-1. Since departments use a PWGSC appropriation/authority to issue Standing Advances, they must first seek PWGSC approval to use this authority.

Temporary Advances which departments issue during the year are charged to their operating or program appropriation. Those advances still outstanding at year-end are credited back against the operating or program appropriation and are charged against a special "H" authority in order to carry them over to the next year. The entry is reversed in the New Year. The only temporary advances that should be carried over for authority purposes are those which are for travel either in the New Year or which span both fiscal years.

An employee is issued a standing advance of $5,000. Subsequently, expenses of $3,978.56 are incurred, at which time, a claim is submitted for reimbursement. It is later decided that the amount of the standing advance is excessive and is reduced to $4,000.

1) A standing advance is issued to an employee for $5,000.00 by way of an RG cheques.

Note: There are further entries required to discharge the accounts payable. Please refer to the Accounts Payable section.

FRA Rationale: In order to record and control the amount advanced to the employee, the financial asset account "Standing advances" is debited. It is basically a type of receivable, which is included under Loans, Investments and Advances.

Authority Rationale: Since the authority to charge these payments comes from the PWGSC Working Capital Loan Vote L15b, authority code H181 is used. As accounts payable do not affect an appropriation, R300 is used.

Object Rationale: "5030 - Acquisition of other advances with cash" is used since the object classification identifies the nature of the transaction (i.e. to provide an advance to an employee - an outside party). The appropriate objects to identify the type of goods or services acquired will be charged when the advance is reimbursed. "6299 - Net Increase or Decrease to Other Liability Accounts" is used to establish an accounts payable.

2) The employee incurs expenses of $3,978.56 and submits a request for reimbursement.

FRA Rationale: Since standing advances are operated on the Imprest System, any reimbursement of disbursements from the Standing Advance is reflected as an operating expense. The reimbursement to the holder replenishes the Standing advance to its original amount. Since the employee paid GST on his purchases, this amount should be recorded to the GST refundable advance account. Any PST paid is included with operating expenses.

Authority Rationale: The expenses, claimed by the Standing Advance holder, are a legitimate charge against a departmental appropriation. Depending on the vote structure of the particular department, B11A or B12A is appropriate. There could be other Authority Codes used for different Scenario s e.g. if the expenses were to be recorded against a Specified Purpose Account (SPA). Since GST is not to be charged to a departmental appropriation, it is set up as an advance under a special authority G111.

Object Rationale: The objects to be used depend on the nature of the expenses incurred when the standing advance was reimbursed to its original amount. Departments should code the total of all individual transactions under $100 in the same manner as the policy for purchases procured by acquisition cards. "6299 - Net Increase or Decrease to Other Liability Accounts" is used to establish or increase an accounts payable. Since there is GST/HST on the purchases, the GST must be reflected by using "8171 - Payment of GST on purchases"

3) It is decided that the amount of the standing advance is excessive and is reduced to $4,000

FRA Rationale: Since the amount that the person is responsible for has been reduced, the financial asset account "Standing Advances" must be reduced and is thus credited to reflect the payment from the holder.

Authority Rationale: Since the authority for Standing Advance flows through the PWGSC Working Capital Loan Vote, L15b, this account must be credited. This is done by using authority code H181. The Cash in Hands of Depts awaiting deposit to RG does not affect an appropriation so R300 is used.

Object Rationale: To record the net impact on Cash Accounts, 5299 would be used. "5035 - Settlement other advances with cash" is used to record either the full or partial reduction of a Standing Advance.

2d) the advance is still outstanding at year-end because the travel will not be completed until the New Year.

Note: there are further entries required to discharge the accounts payable. Please refer to the Accounts Payable section.

FRA Rationale: In order to control and record the amount advanced to the employee, the financial asset "Accountable Advance" must be debited.

Authority Rationale: Depending on the vote structure of the department, the trip advance would be charged against the department's program vote B11A or the operating vote B12A at the time the advance is made. Since accounts payable do not affect an appropriation, R300 is used.

Object Rationale: "5032 - Acquisition of travel advance" is used since the object classification identifies the nature of the transaction (i.e. to provide a travel advance). Once the claim for reimbursement has been processed the advance will be reclassified to the appropriate object that identifies the type of goods or services acquired. "6299-Net Increase or Decrease to Other Liability Accounts" is used to establish or increase an accounts payable.

2a) The employee submits his claim for settlement. The expenses claimed amount to $1,107.10
(including GST of $72.43).

FRA Rationale: The actual operating expenses must be recorded for the period. The accountable advance is no longer outstanding, so it is reversed. Since the department owes the individual the balance of $107.10, the amount must be accrued and recorded as a payable. Since the employee paid GST on his purchases, this amount should be record the GST refundable advance account. Any PST paid would be included as part of the operating expenses.

Authority Rationale: In this case, the operating expenses are greater than the accountable advance given to the individual. This difference must be charged to the appropriate vote or other authority code e.g. SPAs. This can be achieved by netting operating expenses and accountable advances, and coding both with the same vote either B11A or B12A (depending on the department's vote structure). If the expense is to be charged to another authority code e.g. SPA, then the appropriation must be credited for the full advance and the full expense charged to the other authority. Since GST is not to be charged to a departmental appropriation, it is set up as an advance under a special authority G111.

Object Rationale: "0201-Travel -public servants " is used since operating expenses in this Scenario relate to travel for public servants. However, other economic objects under reporting object "020" could be used depending on the nature of the item. "5032- Acquisition of travel advances" is used to reflect the settlement of the travel advance. "6299-Net Increase or Decrease to Other Liability Accounts" is used to establish or increase an accounts payable. Since there is GST on the purchases, the GST must be reflected by using "8171 - Payment of GST on purchases".

2b) Expenses amount to $937.89 (including $61.36 of GST). The employee submits his claim for settlement along with a cheque for the amount owing.

Since the individual spent less than the $1,000 (accountable advance), an amount of $62.11 is collected from the employee.

Authority Rationale: Since the amount of the advance was previously charged to departmental appropriations, there is a requirement to reduce the net charge to the appropriations. To achieve this effect on authorities both the debit and credit should be to the same code. In this case, it is suggested that the authority code originally used for the advance i.e. B11A or B12A be used. Cash in Hands of Dept awaiting deposit to RG does not effect appropriations, therefore "R300 - All other assets or liabilities" is used.

Object Rationale: 0201-Travel -public servants " is used since operating expenses in this Scenario relate to travel for public servants. However, other economic objects under reporting object "020" could be used depending on the nature of the travel or relocation. To record the net impact on Cash Accounts, 5299 would be used. "5032 - Acquisition and settlement of travel advances" is used to the settlement of the travel advance.

2c) The advance is still outstanding at year-end but the travel has been completed.

Note: all claims where the travel has been completed by 31 March should be settled and accounted for prior to the preparation of the annual financial statements. However, in situations where this has not occurred, departments should record the expenses in the proper year depending on materiality.

FRA Rationale: Since the advance is outstanding and the exact amount of the settlement is not known, an accrued liability is established for the estimated amount. This entry will be reversed in the New Year.

Authority Rationale: Since the accountable advance was already charged against the applicable appropriation when it was given, no additional charge to an appropriation should be recorded to avoid a double charge. As a result F116 is used, (an F code has no affect on appropriations). Accrued liabilities do not affect appropriations so R300 is used.

Object Rationale: "0201 - Travel/public servants" is used since these operating expenses relate directly to expenses incurred by a departmental employee for government travel purposes. However, other economic objects under reporting object "020" could be used depending on the nature of the item. "6299 - Net Increase or Decrease to Other Liability Accounts" is used to show an increase in accrued liabilities.

2d) The advance is still outstanding at year-end since the travel will not be completed until the New Year.

Note: The amount to be reflected in this entry should only be for the advances whereby the travel is to occur in the new year or straddles over two years. The purpose of the transaction is solely for authority purposes i.e. to ensure that the carry-over of any advances is charged to the correct authority at year-end. This entry would only be made in the department's books and no interdepartmental settlements (IS) would be sent to (or be recoverable from) PWGSC.

FRA rationale: There is no effect from an accrual accounting perspective. Therefore, a debit and credit is made to the same account for same amount.

Authority Rationale: Since the amount of the advance is still outstanding at year-end, the amount should not be charged to the operating or program vote B11A/B12A of the department in that year. Consequently, it must be removed and moved to a special authority, H182 - "Payments for accountable temporary advances (e.g. trip advances at year-end)". It should only reflect the advances paid out in the old year for travel to be completed in the New Year. It is to be reversed in the new year.

Object rationale: There is no effect on objects. Therefore the same object is debited and credited for the same amount. In this case either "5049- Other adjustments to advances" or "5032 - Acquisition and settlement of travel advances" may be used.

3) The advance carried over in journal entry 2c) must be reversed in the new fiscal year.

Note: The purpose of this entry is to remove the accrued liability from the books in the new year since the subsequent settlement of the claim will discharge the liability. When the claim is settled, either entry 2(a) or 2(b), as applicable, will be made.

FRA rationale: This is a straight reversal of entry 2c) and therefore the same FRAs are used.

Authority rationale: There is no impact on appropriations or authority since the appropriations were charged in the previous year when the advance was given.

Object rationale: The purpose of this entry from an object perspective is to reverse the entry made in the old year, as per 2c). To record the net impact on Other Liabilities, "6299 - Net Increase or Decrease to Other Liability Accounts" is used.

4) The advance carried over in journal entry 2d) must be reversed in the new fiscal year.

FRA rationale: Since the Accountable advance account would have been rolled over automatically as part of the opening balances, this entry must reflect a Nil effect. Consequently, the debit and credit are to the same account for the same amount.

Authority rationale: The purpose of this entry is to charge the departmental program (B11A) or operating (B12A) vote since this advance should be settled in the current year. Although "H182" was used to record the advance in the old year, it should not be used in the new year entry. Instead, the credit is to "F116" since these advances will be accounted for at a later date when the claim is submitted for reimbursement.

Object rationale: There is no effect on objects. However, adjustments to advances which are neither the issuance nor the settlement of advances are recorded against 5049 "Other adjustments to advances".

Standing advances and temporary advances are recorded in the government's chart of accounts as "Standing advances to employees" or "Accountable advances (temporary advances)". They are recorded on the departmental Statement of Financial Position as part of financial assets and may be combined for presentation purposes.

3.2.4 Debt Deletions

Debt write-off involves deleting uncollectible debts owing to the Crown but not extinguishing the legal right of the Crown to collect the debts. The purpose of write-offs is to reduce the costs of maintaining records of accounts receivable that are valueless or uncollectible. Forgiveness and remission is a process that extinguishes a debt, releases the debtor from all liability, waives the Crown's right to reinstate the debt, and permits both the Crown and the debtor to remove the debt form their accounts. The major difference between the two is that forgiveness is used for non-budgetary transactions such as loans whereas remission is applied to budgetary expenditures only.

No write-off or forgiveness of a debt can occur without an appropriate authority.

There are two Scenario s with respect to debt deletions, those that do not require a charge to an appropriation and those that do.

1a) A trade accounts receivable is the result of the provision of goods/services. Since the expenditures related to the products that were sold were originally charged to a budgetary vote (operating, program, capital vote etc), there is no requirement to get it off the books via a budgetary vote.

1b) Repayable contributions are charged via a budgetary vote (Grant and Contributions appropriation)when payment is made to the recipient. To write it off, section 25.1 of the FAA would apply. A charge to an appropriation is not required thus an F code would be used, but ministerial approval would be required.

Anything charged to a budgetary vote can be written off under ministerial authority except those debts identified in Section 5 of the Debt Write-off regulations. In these cases approval of TB is required but no charge to budgetary vote is required.

2a) If the receivable to be deleted is recorded on the Statement of Financial Position through a Loan Vote (originally charged to a non-budgetary L vote i.e. a loan or an accountable advance), then departments must charge the write-off to a budgetary vote.

For those departments that issue advances through there own Working Capital Advance Appropriations such as DND and DFAIT, the accountable advance would have arisen as a result of the original transaction having been charged to a non-budgetary vote. For example an individual submits a travel claim for an amount, which is less than the amount advanced, which was charged to an accountable advance account (an asset account). If the amount was not collected on the settlement of the claim there is amount owing by the claimant which should be set up in departmental books as an accounts receivable. In order to write this amount off, the approval of TBS would be required as well as a charge to an appropriation. This is because the payment for which recovery is being suspended has never been charged a budgetary vote. It should be noted that since this Scenario is only relevant to a few departments this will not be explored in any further detail.

Non-Budgetary votes are those for expenditures that are to be recorded on the Statement of Assets/Liabilities of the Government of Canada as some kind of asset and are identified by the letter L in the Estimates. Examples include loans, accountable advances and investments in Crown Corporations.

Budgetary Votes are those for expenditures which are charged to either a program vote, operating vote, capital vote or grants & contribution (G&C) vote.

Same as a write-off for an Account Receivable. See Accounts Receivable section of the manual.


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