In: Accounting
Imagine that you work in the accounting department of a university and your boss has asked you to explain components of revenue, expenses, and changes in net asset that are reported on the university’s statement of revenues.
Respond to the following in a minimum of 175 words:
Discuss at least two unique situations or transactions that you may encounter. Describe any circumstances the entity may engage in activities that result in Unrelated Business Income Tax (UBIT).
Revenues and Expenses:
An income statement may be divided into two primary sections: revenues and expenses. Revenues represent amounts earned and realized or realizable. Common revenue accounts include sales and service revenues. Note that contra-revenue accounts also exist such as sales discounts. Expenses, in contrast, represent costs incurred during the period. Prominent expense accounts include cost of goods sold and utilities
The primary source of revenue and, therefore, the first situation one would likely encounter when studying a university's statement of revenues, expenses, and changes in net asset is tuition. When students enroll, the tuition revenue is recorded and a receivable is established. When the student makes a tuition payment, the receivable is reduced and cash is increased.
Scanning the statement and locating operating expenses, we would most likely find salaries, wages, and benefits in a prominent position. Given the large number of faculty and staff required to maintain a university, this is a large expense on most university's books. At the end of a specified time period, the salaries, wages, and benefits earned by employees is accrued by increasing the expense account and its corresponding liability accounts. When payment is made, the liabilities are reduced along with cash.