Subject: Accrual Accounting - Revenues, Expenses, and Program Costs

Responsible Office: Office of the Chief Financial Officer

Chapter 3. Accrued Revenues

3.1 Overview

3.1.1 This chapter establishes procedural requirements for accrued revenues. Revenues are an inflow of resources the Government demands, earns, or receives by donation. Revenue is considered a budgetary source³ and comes from exchange or nonexchange transactions. Exchange revenues arise when a Government entity provides goods and services to the public or to another Government entity for a price. Another term for "exchange revenue" is "earned revenue." Nonexchange revenues arise primarily from exercise of the Government entity's power to demand payments from the public (e.g., taxes, duties, fines, and penalties) and also include donations.

³ NPR 9420.1 Budget Formulation.

3.1.2 An intra-governmental transfer of cash or of a capitalized asset without reimbursement (donation) changes the resources available to both the receiving entity and the transferring entity. The receiving entity should recognize a transfer-in as an additional financing source in its result of operations. Similarly, imputed financing is the result of Government entities receiving goods and services from other Government entities without reimbursing the providing entity for all the related costs. As a result, an imputed financing source should be recognized by NASA as equal to the imputed cost, which offsets any effect of imputed cost on net results of operations.

3.2 General Requirements

3.2.1 The accrual method of accounting applies to revenue, both exchange and nonexchange. SFFAS 7 requires Federal agencies to recognize revenue when something of value is provided to the public or another Government entity at a price or when a legally enforceable claim arises.

3.2.2 NASA identifies exchange revenue separately from nonexchange revenue and other financing sources to report the net cost of operating programs and provide the accounting foundation to report the cost of output measures for performance evaluations. Exchange revenue, nonexchange revenue, and other financing sources are recognized and measured differently under the accrual method of accounting. Exchange revenue is matched with the cost of outputs of goods and services sold to the public to enable NASA to report the cost of not charging the full cost of those goods and services. Nonexchange revenue and other financing sources are not matched with costs because they are not earned in the operations process.

3.2.3 NASA personnel will:

a. Enter accounting transactions for revenue in the core financial accounting system.

b. Record revenue within, or as close as possible to, the period in which it is earned to match revenue with the cost of goods and services.

c. Record revenue for the full cost of goods or services provided to the public or other entities in accordance with NPR 9090.1, Partnership Agreements - Financial Requirements and Administration.

d. Distinguish between exchange and nonexchange revenue. This requirement supports the effort to identify the net cost of programs.

e. Record revenue using the funding codes and symbols assigned by Treasury, OMB, and NASA, as required.

3.3 Revenue Recognition

3.3.1 Revenue from exchange transactions should be the actual price received or receivable under the established pricing arrangement. Nonexchange revenue should be measured by the collecting entities but should be recognized by the entities legally entitled to the revenue (the recipient entities). Revenue arising from donations should be recognized for those inflows of resources that meet recognition criteria for assets and should be measured at the estimated fair value of the contribution.

3.3.1.1 Exchange Revenue. Exchange revenues and gains are inflows of resources to NASA that have been earned. They arise from exchange transactions, which occur when each party involved with the transaction forfeits value and receives value in return. Revenues from specific types of exchange transactions should be recognized as follows:

a. Provision of Goods or Services. NASA is reimbursed for the cost of goods and services provided to the public or another Government entity. Each party receives and forfeits something of value, therefore, NASA personnel should recognize the revenue as exchange revenue.

(1) When goods or services are provided to the public or another Federal Government entity (except for specific goods or services produced to order under a reimbursable agreement, contract, or other type of order), revenue should be recognized when the goods or services are provided.

(2) When specific goods or services are made or produced to order under a reimbursable agreement, contract, or other type of order (either short or long term), revenue should be recognized monthly based on the ratio the costs incurred to date on that order in relation to the total costs estimated to be incurred when the order is completed. If a loss is probable (more likely than not), revenue should continue to be recognized in proportion to the estimated total cost and costs should continue to be recognized when goods and services are acquired to fulfill the contract. Thus, the loss should be recognized in proportion to total cost over the life of the contract.

(3) When services are rendered continuously over time or the right to use an asset extends continuously over time, revenue should be recognized in proportion to costs incurred or the use of the asset.

b. Asset Sales. When an asset other than inventory is sold in accordance with NPR 4300.1, NASA Personal Property Disposal Procedural Requirements, Centers will recognize any material gain when the asset is delivered to the purchaser. This may result in an adjustment to the loss previously recognized if the asset has already been removed from service.

c. Interest Earned on Treasury Securities Purchased Using Trust Funds and Special Funds. Exchange revenue may provide the predominant source of some trust and specialty fund balances. In such exceptional cases, the interest should be classified in the same way as the predominant source of funds (i.e., as exchange revenue).

3.3.2 Nonexchange Revenue. Nonexchange revenues are inflows of resources the Federal Government demands or receives by donation. Such revenue should be recognized when a specifically identifiable, legally enforceable claim to resources arises, to the extent that collection is probable, and the amount is reasonably estimable.

a. Donations may be financial resources, such as cash or securities, or nonfinancial resources, such as land or buildings. NASA may accept only those donations that are allowed under the provisions of the National Aeronautics and Space Act, 51 U.S.C. § 20113(d). Within NASA, revenue arising from donations should be recognized for those inflows of resources that meet recognition criteria for assets and should be measured at the estimated fair market value of the contribution. Heritage assets, or other stewardship Property, Plant, and Equipment (PP&E), are expensed if purchased. Donated heritage assets do not result in revenue recognition.

b. Fines and Penalties. Fines and penalties are monetary requirements imposed on those who violate laws or administrative rules. Nothing of value is received or forfeited in return for the payment. The collection is a custodial transaction if the payment is transferred to the general fund or the agency legally retaining the funds. The funds are recognized as nonexchange revenue for the agency retaining the funds.

3.3.3 Other Financing Sources. Other financing sources provide inflows of resources that increase results of operations during the reporting period and include appropriations used, transfers of assets from other Federal Government entities, and financing imputed with respect to any cost subsidies. Financing outflows may result from transfers of NASA's assets to other Federal Government entities. Unexpended appropriations are recognized separately in determining net position but are not financing sources until used.

3.3.4 Gains. When a transaction with the public or another Federal Government entity at a price is unusual or nonrecurring, a gain should be recognized rather than revenue to differentiate such transactions. Gains result from the sale, exchange, trade, or disposition of Government assets (except for inventory). Generally, any difference between the sales proceeds in excess of the book value of the assets is recognized as a gain when the asset is sold. This general rule applies to the sale of PP&E, receivables, investments, and other assets where the selling entity is entitled to retain the proceeds of the sale. In addition, the distinction between revenues and gains is a matter of classification in the general ledger accounts and their presentation in financial statements. Revenues are commonly reported at their gross amount while gains are shown net of related book value. Refer to NPR 9250.1, Property, Plant, and Equipment, and Operating Materials and Supplies, and NPR 9690.1, Investments, for additional information.

3.3.5 Price vs. Cost. Price is the amount charged to provide a good or service to the public or another agency. Cost is the financial value of resources expended to provide a good or service to the public or another agency. When cost exceeds price, the taxpayer provides the balance of resources required to provide the good or service. When price exceeds cost the excess is reported as gains, retained to support business-type activities, or transferred to the general fund for custodial activities.

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