Guide to Accrual Accounting for Ohio's Rural Transit Systems

Guide to Accrual Accounting for Ohio’s Rural Transit Systems March 2009

Prepared For The Ohio Department of Transportation (ODOT) Office of Transit

Prepared By

Table of Contents

Page No. Section 1 – Why Accrual Accounting 1 Federal Transit Administration (FTA) Requirement 1 Ohio Department of Transportation (ODOT) Requirement 2 Cash vs. Accrual Accounting 3 Good Business Practice 6 Recap – Why the Accounting Method Matters 7

Section 2 – Basic Accounting Principles 8 Overview 8 Bookkeeping vs. Accounting 10 Accounting Equation (Assets = Liabilities + Owner’s Equity) 11 Revenue Recognition and Matching Principles 13 Chart of Accounts – Normal Balances 14 Debits and Credits 16 Accounting Cycle 18 o Record (Journalize) Transactions 18 o Post Journal Entries to Ledger Accounts 25 o Prepare a Trial Balance 28 o Make Adjusting Entries & Prepare Adjusted Trial Balance 29 o Prepare Financial Statements 32 o Journalize & Post Closing Entries & Prepare Closing Trial 40 Balance

Section 3 – Ohio Rural Transit Systems & ODOT Quarterly 41 Invoice Report Revenue Transactions 41 o Transportation Revenues 41 o Non-Transportation Revenues 42 Expense Transactions 43 o Labor (Wages) 43 o Fringe Benefits 44 o Services 44 o Materials & Supplies 45 o Utilities 45 o Casualty & Liability Costs 46 o Taxes 46 o Purchased Transportation Services 46 o Miscellaneous Expenses 46 o Interest Expense 47 i

o Leases & Rentals 47 o Depreciation 47 o Other Costs 47

Section 4 – Accrual Accounting Options 48 Manual Systems 48 Off-the-Shelf Software 48 Conversion of Cash Data to Accrual Format at End of Each 49 Quarter Professional Assistance 49

Section 5 – Exhibits & Samples 50 ODOT Chart of Accounts 50 Steps for Completing the ODOT Quarterly Invoice 50 Accrual Accounting - Class Exercise 58

Section One – Why Accrual Accounting

Federal Transit Administration (FTA) Requirement

For calendar year 2008 and beyond, the FTA began to require all transit systems (urban and rural) to report data using the accrual method of accounting. For rural systems this was a change because in the past they were permitted to report on a cash basis. This regulation issued in April of 2007 can be found in FTA Circular # C 9040.1F which states ―Costs incurred and available balances are reported annually on an accrual basis, on the Financial Status Report in FTA’s Transportation Electron Award Management (TEAM) System‖. ------

CIRCULAR U.S. Department of Transportation FTA C 9040.1F Federal Transit Administration April 1, 2007

Subject: NONURBANIZED AREA FORMULA PROGRAM GUIDANCE AND GRANT APPLICATION INSTRUCTIONS

1. PURPOSE. This circular is a re-issuance of guidance on the administration of the transit assistance program for nonurbanized areas under 49 U.S.C. 5311, and guidance for the preparation of grant applications. This revision incorporates provisions of the Safe, Accountable, Flexible, Efficient, Transportation Equity Act: A Legacy for Users (SAFETEA–LU), and includes the most up-to-date available guidance for the program.

2. CANCELLATION. This circular cancels Federal Transit Administration (FTA) Circular 9040.1E, ―Nonurbanized Area Formula Program Guidance and Grant Application Instructions,‖ dated October 1, 1998. ………. Chapter VI, financial Management 6.b (2) on page VI-7

(1) Costs incurred and available balances are reported annually on an accrual basis, on the Financial Status Report in FTA’s Transportation Electronic Award Management (TEAM) System.

Ohio Department of Transportation (ODOT) Requirement

In Ohio, ODOT Office of Transit distributes federal funds to rural transit systems. ODOT is required to comply with all federal regulations associated with federal transit funds as well as ensure that all transit systems receiving federal funds are in compliance with applicable federal regulations. One such requirement is that rural transit systems report their financial data in an accrual accounting format to ODOT, who in turn must compile that data and provide reports to the FTA. ODOT is required to enforce this reporting requirement to assure compliance with FTA regulations. As a consequence, Ohio rural transit systems must now report their quarterly data to ODOT on an accrual basis .

Accrual accounting reporting offers the advantage of allowing for more relevant statewide comparisons of system operations, and will assist ODOT in providing accurate and timely reports as requested from FTA, State legislators, other State departments, and other interested parties.

During the fall of 2007, ODOT provided basic training on accrual accounting. This manual is intended to further assist Ohio rural transit systems in meeting the accrual accounting requirement by offering basic accounting information as well as specific accrual accounting applications and examples to assist in understanding and compliance.

Cash vs. Accrual Accounting

Usually the first question on everyone’s mind is:

Q: Can you explain the basic difference between cash and accrual accounting and tell me how it impacts the bottom line?

A: Officially, there are two types of accounting methods, which dictate how a company's transactions are recorded in the company's financial books: cash- basis accounting and accrual accounting. The key difference between the two types is how and when they record financial transactions.

Cash-basis accounting

In cash-basis accounting, companies record expenses in financial accounts when the cash is actually laid out, and they book revenue when they actually hold the cash in their hands or, more likely, in a bank account.

Accrual accounting

If a company uses accrual accounting, it records revenue when the actual transaction is completed (such as the completion of work specified in a contract agreement between the company and its customer), not when it receives the cash. That is, the company records revenue when it earns it, even if the customer hasn't yet paid.

Expenses are handled in the same way. The company records any expenses when they're incurred, even if it hasn't yet paid for the supplies or services.

For example, when a transit system buys fuel for its buses they may very likely do so on account and not actually lay out the cash for the fuel until a month or so later when they get the bill. Under accrual accounting the fuel expense would be booked in the accounting period in which the fuel was used (this matches the expense with the service performed) not in a future period when the bill is actually paid.

The next question is often:

Q. Which method is better?

A. For accounting and business planning purposes, the best method regardless of the type of business (except possibly a very, very, very, small business) is the accrual-based method. Cash-based accounting can distort the true operations of your business and incorrectly reflect income and expenses. Accrual accounting takes into account when something happens (not just when cash changed hands) and in today’s business world where most companies extend and receive

credit, the actual exchange of cash may take place months after the actual work was done, goods received, wages earned, etc.

These are simple answers to more complex questions so lets look at the differences in more detail.

Two Types of Financial Record Keeping – Cash & Accrual

There are two types of accounting systems or methods available to business owners or non-profits to keep track of their financial records: cash accounting and accrual accounting. These two accounting methods are important to understand, because a business is required to use one or the other consistently in record-keeping for business and tax purposes. Here’s a definition of each:

Cash Accounting

In the cash accounting method, debits and credits are recorded to accounts only when money actually changes hands.

For example, let’s assume a transit agency provides contracted service during December 2007, but doesn't get paid for the service until the following year, January 2008. In this simple example (if we assume that is the only transaction and the expenses associated with providing the service were paid in 2007), the agency reports a loss in 2007 because they paid for the wages, fringes, fuel and other expenses associated with providing the service in 2007. Conversely, the agency reports a huge profit in 2008 because they collected the revenue for the services previously provided and had no expenses (because all expenses were booked the prior year).

Benefits of Cash Accounting

1. Working under a cash accounting model can be easier for small business owners in the sense of time spent. It is not much different that keeping a simple check book.

2. It’s often easier for small business owners to understand basic cash flow, as opposed to more complex asset and liability accounts.

Drawbacks of Cash Accounting

1. The business or agency does not have a clear picture of who owes you money, or whom you owe money.

2. It makes it difficult, if not impossible, to easily evaluate a business’ financial success or failure.

Accrual Accounting

In the accrual accounting method, debits and credits are recorded to accounts when the transaction itself takes place, regardless of when cash actually exchanges hands (with ―cash‖ meaning any kind of payment for goods or services rendered). The actual transaction actually consists of several parts: the transaction would first be accounted for in a receivables account (money owed to the company, as an asset); and the receivables account would be subsequently decreased when the cash account is increased once the payment was actually made (later in time).

In our simple example used above, the transit agency would record contract revenue in December 2007, even though they have not as yet received payment. When the agency prepares their December financial statements, the expenses and the associated revenues are in the same time period as the service provided so a true picture of what they earned or lost that month exists. It can be said that the revenues match the expenses which is known as the ―matching principle‖ discussed later in this manual.

Benefits of Accrual Accounting

1. Expenses and revenues are more closely matched in the time period for which the work was performed.

2. Leads to more comprehensive record keeping and account evaluation when looking at an agency’s current financial situation (cash on hand, amounts owed to others, cash owed to the business, etc.), which can help in determining the success or failure of a business.

Drawbacks of Accrual Accounting

1. None! (just kidding). It is more challenging to master and may require some professional training, or assistance.

Good Business Practice

The majority of United States companies and non-profits now use accrual accounting. In fact, all incorporated companies must use accrual accounting according to the generally accepted accounting principles (GAAP). This requirement now assures that persons reviewing a corporation's financial reports are able to make meaningful comparisons. Cash accounting is used mainly by very small ―family type‖ business and some governments (although most governments are now also required to convert their year-end books to an accrual basis for basic reporting).

In transit, FTA has likewise adopted this accrual accounting reporting requirement in order to improve state and national reporting, public understanding, and the ability to make relevant comparisons among agencies. The good news is that once a transit agency meets this regulation (the accounts are properly set-up and used), the agency will have access to information that can lead to better business practices, more consistent financial reporting, and may assist with future business planning, service development and operational decision making.

For your own internal reporting the use of accrual accounting will make your data both more relevant and consistent. For example, let’s assume that you operate the same route for two months at a cost of $15,000 per month and you provide 5,000 trips each month. If you use accrual accounting you would have expenses of $15,000 each month because the expenses are booked, or accounted for, in the month the service took place. If you report cost per trip, it would be $3 for each month.

Under cash accounting things could look much different. Let’s assume that in the first month cash is tight -- so you only pay $5,000 of the bills. Consequently, the only ―cash‖ expenses reported for that month are $5,000 so your cost per trip is $1. Now in the following month you receive some cash so you are able to pay the $10,000 from the previous month along with the $15,000 from the current month so your ―cash‖ expenses for the month are $25,000. This amount divided by the 5,000 trips gives you cost per trip of $5, which is a large change from the $1 reported from the previous month. This simple example shows how cash accounting can lead to major swings in reporting statistical data that may be misinterpreted by your Board, a local government, or even the press!

By reporting on accrual accounting, your expenses more closely match the services provided, resulting in more consistent statistics and data reporting. It just makes good business sense!

Recap - Why the Method Matters

The accounting method a business uses can have a major impact on the revenues and expenses reported in a given period, and consequently on the reported bottom line. Here's how:

Cash-basis accounting: Expenses and revenues aren't carefully matched on a month- to-month basis. Expenses aren't recognized until the money is actually paid out, even if the expenses are incurred in previous months. Revenues earned in previous months aren't recognized until the cash is actually received. However, cash-basis accounting excels in tracking the actual cash available.

Accrual accounting: Expenses and revenue are matched, providing a company with a better idea of how much it's spending each month to operate and how much profit it's making (or money it’s losing). Expenses are recorded (or accrued) in the month incurred, even if the cash isn't paid out until the next month. Revenues are recorded in the month the project is complete or the product is shipped, even if the company hasn't yet received the cash from the customer. Accurate financial statements can easily be prepared showing what is owed to the company, what the company owes others, and if the business is profitable.

The use of accrual accounting by rural transit systems is both a federal and state reporting requirement. But keep in mind that this reporting requirement offers you and your agency many benefits as well. Once you take the time to set up and master an accrual accounting reporting system, you will find that your financial data is more organized, you can prepare relevant financial reports more easily, make more informed operational decisions, and make meaningful comparisons to other agencies.

Section Two – Basic Accounting Principles

Overview

Let’s start by looking at a few quick definitions and accounting tidbits:

Accounting - The bookkeeping methods involved in making a written financial record of business transactions and in the preparation of statements concerning the assets, liabilities, and operating results of a business using those records.

Accounting System - the people, procedures, and resources used to gather, record, classify, summarize and report the financial information of a business, government or other financial entity.

Bookkeeping vs. Accounting – In general, bookkeeping is the recording of financial transactions into financial forms and systems. Accounting is the sorting, reporting, and analysis of this data.

Accounting Equation: Assets = Liabilities + Owner’s Equity.

Revenue Recognition and Matching Principle – The process of ensuring that revenues and expenses are recorded in the same accounting period in which the work was performed or goods received.

There are five types of accounts: 1. Assets 2. Liabilities 3. Owners' Equity (Stockholders' Equity for a corporation) 4. Revenues 5. Expenses

Chart of Accounts - All the accounts used in an accounting system are listed in a Chart of Accounts. They are listed in the order of the five accounts shown above. This helps us prepare financial statements by conveniently organizing accounts in the same order they will be used in the financial statements. Generally speaking, most companies set up their chart of accounts’ numbering sequence using the numbers corresponding to the five types of accounts listed above (i.e., asset accounts begin with a ―1‖, revenue accounts begin with a ―4‖, etc.).

Double-entry bookkeeping (debits & credits) - the practice of recording a business transaction in two equal parts, called debit and credit entries. Debit refers to the left column and credit refers to the right column, in an accounting journal.

In accounting we are simply taking all the financial transactions related to a business and recoding data from each transaction into a set of accounts that can be later used to tell us things we will need to know to operate our business effectively.

The accounting process in a nutshell: 1. Capture and record a business transaction, 2. Classify the transaction into appropriate accounts, 3. Post transactions to their individual ledger accounts, and 4. Summarize and report the balances of ledger accounts in financial statements.

Forms and Tools used in Accounting – Financial transactions are recorded as journal entries in the general journal book, which are chronological listings of financial events and transactions. These are separated by account and then posted in ledger books, which provide a summary of each unique account.

Financial Statements – The most common financial statements are:

The Balance Sheet which lists the balances in all Asset, Liability and Owners' Equity accounts. This shows the business’ worth at any given moment in time.

The Income Statement lists the balances in all Revenue and Expense accounts. This reflects whether or not a business in making a profit (or operating at a loss) over any given range in time..

The Balance Sheet and Income Statement must accompany each other in order to comply with Generally Accepted Accounting Principles (GAAP). Financial statements presented separately do not comply with GAAP. This is necessary so financial statement users get a true and complete financial picture of the company.

All accounts are used in one or the other statement, but not both. All accounts are used once, and only once, in the financial statements. The Balance Sheet shows account balances at a particular date. The Income Statement shows the accumulation in the Revenue and Expense accounts, for a given period of time, generally one year. The Income Statement can be prepared for any span of time, and companies often prepare them monthly or quarterly.

Now lets look at accrual accounting in more detail!

Bookkeeping vs. Accounting

Am I an Accountant or a Bookkeeper? What is the difference?

This is a common question. Most people, even accountants, don't know the answer to this question. And in most cases the answer doesn't matter. But in those cases where someone wants to be technically correct, the answer lies in what services a person performs. If a person is doing bookkeeping, then they are a ―bookkeeper‖. If they are doing accounting, then they are an ―accountant‖.

What is Bookkeeping?

There are many steps to the bookkeeping cycle. A bookkeeper is a person that performs one or more of these steps. In large companies, for instance, the bookkeeping cycle might be divided into departments such as Accounts Receivable, Accounts Payable, or Payroll. While most often these people are referred to as "clerks", they might also be considered bookkeepers as they are "keeping the books" for a company. In small companies, the bookkeeper may perform the entire bookkeeping process, or might just enter data to give to the "accountant".

All bookkeeping steps are mechanical in nature. Bookkeeping is a regimented process usually occurring in monthly cycles consisting of entering transactions into the journals, making adjustments, and preparing reports. The Accounts Receivable Clerk may be assigned to enter all sales on account, and all payments from the customers. The Accounts Payable Clerk's responsibility would be to enter purchase orders and checks. A full-charge bookkeeper is someone who can do it all - including compiling the data into the General Ledger and preparing financial statements.

What is Accounting?

Someone has to set up the bookkeeping system, monitor it, and interpret the results. These processes are called "Accounting." The accounting process is much less mechanical and more subjective. It begins with designing a system that will benefit the business, by capturing the financial information in a useful manner without being overly burdensome to the bookkeeper. Once set up, the accountant monitors the system to ensure it's doing what it's suppose to do. And finally, on a regular basis (typically monthly), the accountant presents the financial statements to management in such a way that decisions can be made.

Since accounting requires an understanding of the bookkeeping process, accountants typically supervise the bookkeepers. In a large corporation there may be several, possibly even thousands of accountants. One will be designated as the "Controller" who oversees the entire accounting and bookkeeping system. In a small business, one person, often a freelancer (a contract accountant) will perform all the phases of accounting and bookkeeping for a company. Since "Accountant" is the more prestigious title, most small business jack-of-all-trades call themselves an "Accountant".

Accounting Equation (Assets = Liabilities + Owners’ Equity)

The Accounting Equation - You may have heard someone say "the books are in balance" when referring to a company's accounting records. This refers to the use of the double-entry system of accounting, which uses equal entries in two or more accounts to record each business transaction. Because the dollar amounts are equal we say the transaction is "in balance."

The accounting equation uses "simple math" and involves only addition and subtraction. In fact, almost all the math you will do in basic accrual is simple math. You will occasionally use multiplication and division in splitting transactions between accounting periods when required to do so, but all changes to basic accounts will be addition or subtraction.

Think for a moment about a new company. It's accounting system consists of a new, "fresh" set of books, no entries have ever been made, all accounts have a zero balance. Assets = Liabilities + Owners' Equity $0 = $0 + $0

The books are in balance!!

If each and every transaction is a entered as a "balanced" entry, the books will stay in balance.

The accounting equation can be expressed in three ways:

Assets = Liabilities + Owners' Equity; Liabilities = Assets - Owners' Equity; and Owners' Equity = Assets – Liabilities.

In order to maintain a set of ―balanced books‖ each accounting transaction will impact an account (or accounts) on both sides of the accounting equation. The following outline describes in greater detail the three major divisions of the accounting equation or General Ledger.

Balance Sheet Accounts:

ASSETS — WHAT WE OWN (Debit balance accounts)

Current — Accounts that show assets with continued activity and turnover within the year. Also known as short term. Items such as: checking, savings, accounts receivable, petty cash, etc.

Property, Plant and Equipment — Accounts reflecting assets owned but not intended to have a quick turnover. These items are marked down (depreciated) gradually over a number of years specified by the IRS, FTA, or ODOT. Items in this category include service vehicles, buses, facilities, equipment, etc.

Other — Assets that do not have a quick turnover and that are not depreciated. Items in this category might include long-term investments (CD’s, Bonds, etc.).

LIABILITIES — WHAT WE OWE (Credit balance accounts)

Current — Liabilities with continual activity and turnover within the year. Items such as accounts payable, wages/benefits payable, etc. are examples of current liabilities.

Long-Term — Contracts payable beyond one year. If you borrow money to finance a facility, that would be considered a long term liability.

EQUITY or CAPITAL (Credit balance accounts)

These accounts represent the initial investment in the business. In addition to this initial investment, the annual profits or losses are included in this section.

A simple way to illustrate the accounting equation and the relationship to double entry accounting is to look at what happens if a government loans your system $25,000 in funds for operations on March 1st. You would debit cash, an asset (which you received) and credit loans payable, a liability (to record on your books that you owe the government those funds). You made and entry on each side of the equation so you are still in balance.

Owners' Assets = Liabilities + Equity $25,000 $25,000 $0 = + Cash Received Loan from Govt.

At this point you might be asking yourself how revenues and expenses impact the accounting equation and the balance sheet – good question. The simple answer is that at the end of each accounting period the difference between revenues and expenses (or the profit or loss) is booked to the equity account. Net income would increase equity and a loss would decrease equity. More on this later.

Revenue Recognition and Matching Principles

Determining the amount of revenues and expenses to report in a given accounting period can be challenging. Proper reporting requires an understanding of the nature of the company’s business as well as careful monitoring of the accounting periods.

Two principles are used as guidelines: Revenue Recognition Principle Matching Principle

The revenue recognition principle requires that revenue be recognized in the accounting period in which it is earned (which often times will differ from the accounting period in which it was actually collected).

For example, a transit agency recognizes (records) revenue when the services are performed. Let’s assume the agency provides $1,000 in contract transit service during the last two weeks of March. The agency would record $1,000 in revenue for March since that is when the service was performed and the revenue actually earned. The fact that the agency will most likely not collect the $1,000 in cash from the customer until April is not relevant.

The matching principle requires that efforts (expenses) be matched with accomplishments (revenues).

The critical issue is determining when the expense makes its contribution to revenue. In the above example think about the wages for the operators driving the buses during the last two weeks in March. Even though they are actually given their paychecks the first week in April, the expenses of their labor and fringes would be booked in March because that is the month for which they performed the service.

If we assume that the cost of providing this contract service was $800, then once the March financial statements are processed they would show a profit of $200 ($1,000 in revenue, offset by $800 in expenses). This represents a true picture of what happened with the transit system in March, even though the actual wages and fringes have not been paid, or the revenue collected. The unpaid wages and fringes are booked as a payable/liability (something owed to another) and the uncollected revenue is booked as a receivable/asset (something owed to the transit system). These items would be reflected on the balance sheet.

When to Record Revenue - Realization Principle - at the time goods are sold or services are rendered.

When to Record Expenses - Matching Principle - offsetting expenses against revenues in the appropriate time period when the service was performed or goods received.

Chart of Accounts – Normal Balances

An Account is a record used to summarize increases and decreases in a particular asset or liability, revenue or expense, or in owners’ equity. Accounts often have very simple and generic titles such as Cash, Accounts Payable, Sales, and Inventory. These are simple and descriptive terms under which many different transactions can be recorded. Each account should be identified by a unique number along with a basic description. In the business world, there are no set rules on account names and you may set up your list of accounts to best fit your business needs. However, most industries, including public transit, start with some basic standards or templates.

Accounts are organized into a Chart of Accounts, a simple list of account titles and numbers (if used) presented in the following order: Assets, Liabilities, Equity, Revenue, and Expenses. Organizing accounts in the correct order makes it much easier to prepare financial statements and enter transactions.

Here is a sample Chart of Accounts, showing account sections in the correct order.

ABC Company, Inc. Chart of Accounts

Balance Sheet Accounts Income Statement Accounts

---- Asset Accounts ------Revenue Accounts ---- Cash Sales Revenue Accounts Receivable Sales Returns & Allowances Prepaid Expenses Sales Discounts Supplies Interest Income Inventory Land ---- Expense Accounts ---- Buildings Advertising Expense Vehicles & Equipment Bank Fees Accumulated Depreciation Depreciation Expense Other Assets Payroll Expense Payroll Tax Expense ---- Liability Accounts ---- Rent Expense Accounts Payable Income Tax Expense Notes Payable - Current Telephone Expense Notes Payable - Long Term Utilities Expense

---- Stockholders' Equity Accounts ---- Owners/Agency Equity Retained Earnings

What accounts should you use? FTA and ODOT have established accounts that should be used as the basic building blocks in setting up your chart of accounts.

FTA – FTA has developed a ―Uniform System of Accounts‖ (USOA) for use by FTA funded transit agencies. The FTA Chart of Accounts includes basic account numbers as well as descriptions of what items should be posted to each of these accounts. The USOA can be downloaded at the following web address: http://www.ntdprogram.gov/ntdprogram/pubs/reference/USOA.pdf

ODOT – ODOT has created a ―scaled-down‖ version of the FTA USOA for use by Ohio rural transit systems. The ODOT Chart of Accounts highlights the accounts, numbers, and descriptions which rural systems should use for reporting revenues and expenses on their quarterly reports. This can be found on the ODOT website in the Rural Transit Manual, Attachment 5-A as well as in Section 5 of this manual.

You should use the ODOT revenue and expense accounts, along with the FTA USOA accounts (for assets, liabilities, and equity) in setting up your chart of accounts. Some systems may find that they need to track data in more detail and they may create sub- accounts that then would roll-up (add together) into the ODOT/FTA main accounts. For example you might want to track expenses by route so you would have an operator wage account for each route. These would then roll-up at month end into the main operator wage account for reporting purposes. A sample of this might look as follows:

Main Account 501.01 Operator’s Salaries and Wages

Sub Accounts 501.01.A – Main Street Route 501.01.B – North Loop 501.01.C – South Loop

You could then prepare internal reports by route and when it comes time to prepare your Quarterly ODOT invoice, you would roll-up the sub-accounts and report the total under the main account. Also keep in mind that on the ODOT invoice, you must report expenses under the proper function (010, 041, 042, 160, and 199) and some expenses might fall under multiple functions so you should consider setting up unique accounts for each relevant function.

Section 5 provides information on accessing the actual ODOT issued Chart of Accounts for use by Ohio rural transit systems and Section 3 contains a listing of the ODOT revenue and expense accounts along with hints and considerations when reporting based on accrual accounting. Complete descriptions of what items should be booked to each account are included in the USOA and the ODOT prepared Chart of Accounts for rural systems as discussed above. It is highly recommended that you become familiar with both the USOA and the ODOT Chart of Accounts.

Debits and Credits

What is the difference between Debits and Credits?

When you deposit money in the bank, the cashier will tell you "I'll credit your account." You might assume that cash is a credit, and so credits are good. Unfortunately, this conditioning that we receive at the bank causes real confusion in the accounting world. Why? Because in accounting we understand that our bank account is a debit account, and that debts (money we owe someone) are credit accounts - just the opposite of what most people would expect.

The banks can confuse us because they are telling us the entry to their liability account. When you deposit money into your bank account, their liability to you increases since they are holding your money! Since liabilities are credit accounts, they are ―crediting‖ our account or recording that they have a liability to us. When they reduce their liability they have to us (when we take funds out), they are ―debiting‖ their liability account.

Confused Yet? One of the best ways to understand debits and credits is to identify two components of each transaction: 1) what did you receive; and, 2) where did it come from. The debit is what you received, and the credit is the source of the item or service you received. For instance, imagine that you purchased a computer with your credit card. Since the computer is what you received, it's going to result in a debit to the asset account for your computer. The credit will be applied to the credit card liability account (showing money you owe someone) for the amount also of the purchase.

If you can identify what you received and where it came from in every transaction you will have the concept of debits and credits mastered.

When do we use Debit or Credit? When to use a debit or credit to record a journal entry is one of the biggest hurdles for non-accountants. It doesn't have to be difficult, if you remember a few simple rules.

First, you will always use both a debit and credit. That's the idea of the double-entry system. You have two columns, so every journal entry will have an equal dollar amount in each column.

Remember the Accounting Equation?

Assets = Liabilities + Owners' Equity Left side Right Side Debit side Credit Side Debit = Increase Credit = Increase

Credit = Decrease Debit = Decrease

Accounts on the Left side will INCREASE with a Debit (Left column) entry. Accounts on the Right side will INCREASE with a Credit (Right column) entry. They will each DECREASE with the OPPOSITE entry.

Refer to the Chart of Accounts to determine whether an account falls on the Left or Right side of the Accounting Equation.

Normal Account Balances

Accounts have a normal balance - the balance they would have if increases to the account are more than decreases to the account. You will save a lot of time making journal entries if you remember the normal balance for the accounts.

Account type Normal Balance Example Revenue Accounts Credit Sales Revenue Expense Accounts Debit Rent Expense Asset Accounts Debit Cash, Accounts Receivable Liability Accounts Credit Accounts Payable Owners' Equity Accounts Credit Capital Stock

When recording a sale, or other income transaction, you would credit the revenue account, and debit some other account (cash or accounts receivable). When recording an expense, you would debit the expense account, and credit some other account such as accounts payable or cash.

Many transactions are so common it's easier to remember them, rather than try and think them through each time you have to record them. If you remember how to record one side of the journal entry it is fairly easy to figure out the other side from the information given, e.g. cash sale vs. credit sale.

Type of entry Do this Record a sale Credit a revenue account Record an expense Debit an expense account Record a credit sale Debit Accounts Receivable Record a cash sale Debit Cash Buy supplies on credit Credit Accounts Payable

If you refer to these charts before starting a journal entry it will be much easier until you have mastered the concepts.

Accounting Cycle

Accounting Cycle - sequence of procedures used to record, classify and summarize accounting information in financial reports, on a regular basis.

Steps in the Accounting Cycle: 1. Record (journalize) transactions; 2. Post journal entries to ledger accounts; 3. Prepare a trial balance; 4. Make adjusting entries & prepare an adjusted trial balance; 5. Prepare financial statements; and 6. Journalize and post closing entries & prepare after-closing trial balance.

Let’s take a closer look at each of these steps.

1. Record (Journalize) Transactions

Every business transaction is recorded in the General Journal. The General Journal is called the book of original entry. A journal is a chronological record of transactions - they are in date order. Each entry is called a journal entry, and represents a different business transaction. Each transaction is recorded once, and only once. All journal entries follow the rules of debit & credit.

Journal entries should be made in conjunction with the event they are recording, or reasonably soon after that event. Keep in mind that a journal is a chronological record of events. This is the best time to record an event, because the facts and details are still fresh in our minds. Necessary documents, conversations, calculations, etc., are readily available to create a correct record of the event. If we wait too long, the event will be much more difficult to reconstruct.

You should use verifiable, tangible evidence whenever it exists. Tangible evidence has a physical existence – we can touch it, fold, staple, copy and file it. You should look for a check, invoice, purchase order, contract or other business document that is a record of the event, a confirmation of payment received and goods delivered, etc. These documents become the back-up documentation for our journal entry.

There are three general types of transactions and entries: 1. Routine, daily operating events - represents over 99% of all transactions; 2. Occasional events involving major assets, liabilities and owners' equity transactions; and 3. Adjusting and closing entries - made to prepare statements and close the books at the end of the year.

Sample General Journal page

Date Account Debit Credit

Debit = Left column Credit = Right column We enter dollar amounts in the Debit and Credit columns. The totals in the Debit and Credit columns must be equal.

Easy Method to journal entries Follow these simple steps. Ask yourself these questions:

1. Is Cash used in this transaction? Cash is your first asset account, it falls on the left side of the equation and will be used very often. It is easy to remember the rules for the Cash account: Debit = Increase; Credit = Decrease.

2. Was Cash received or paid? Cash Received = Increase = Debit Column = Left Column. Cash Paid = Decrease = Credit Column = Right Column. Decide whether Cash belongs in the Debit or Credit column, write the word "Cash" in the Account column, and the dollar amount in the Debit or Credit column. You are now half way done with the journal entry.

3. Enter the balancing dollar amount in the opposite column as Cash. You don't need to worry about the other account title yet. Remember that a double-entry journal entry needs equal dollar amounts in the Debit and Credit column for each journal entry. Make that dollar entry now, and you're 75% done.

4. Refer to the information given, check the Chart of Accounts and select the correct account for the second part of the journal entry. Use account titles exactly as they appear in the Chart of Accounts.

5. If Cash was not used you can substitute "cash" temporarily where it would go IF it had been used in the transaction. For instance, suppose you are at a restaurant. You could pay in cash, or charge the meal on a credit card. Either way you have paid for a meal, and the journal entry will be very similar. So you can pencil in the word "cash" lightly where it would go. After you finish the journal entry, refer to the Chart of Accounts and replace "cash" with the appropriate account, which will usually end with "Payable" or "Receivable" such as Accounts Payable, Interest Receivable, etc.

The Cash account is equivalent to the company's checking account. The balance goes up when money is deposited in the account, and the balance goes down when checks are written. It works just like your checking account!

So now you know that Cash is an Asset account, is on the Left side of the accounting equation, and the balance can go up or down. The rules you use for the Cash account will be the same for all asset accounts. Now you know how to make journal entries for all asset accounts. Wasn't that easy?

Liability and Owners' Equity accounts are on the Right side of the Accounting Equation, and they follow the OPPOSITE rules as the Cash account. Now you know how to make journal entries for all those accounts! Wasn't that easy, too?

So if you can remember one thing, how the Cash account works, you can easily figure out each and every other account. Since there are only two sides to the Accounting Equation, there are only two possibilities. Pretty simple.

Let's try an easy example using the simple system.

Some transactions are routine and happen very frequently. It helps to know these because they represent 99% of the total journal entries a company will make. All companies earn some sort of revenue, so let's look at a sale transaction:

On March 20th, the transit system collected cash fares of $100.

1) Is Cash used in this transaction? Yes.

2) Was Cash received or paid? Received. [Increase = Debit Column] enter the Cash portion of the journal entry

Date Account Debit Credit Mar-20 Cash $100

The date always starts a journal entry. Enter the month once on a page, and put the day in front of each journal entry on the page, even if they are all on the same date. The day indicates the beginning of a new journal entry. You should also leave one or two blank lines between journal entries on a page.

3) Enter the balancing dollar amount in the opposite column from Cash.

Date Account Debit Credit Mar-20 Cash $100 $100

Almost done...

4) Refer to the information given, check the Chart of Accounts and select the correct account for the second part. This is a sale, so we will use Passenger Fares for the Credit side of the journal entry.

Date Account Debit Credit Mar-20 Cash $100 Passenger Fares $100

The journal entry is in balance, and is complete. A memorandum (or note) can be entered on the line below the journal entry. This should be additional information that is not contained in the journal entry itself, information that will be useful when trying to reconstruct events at a later date.

Another example. On March 1st, the transit system paid rent of $500.

1) Is Cash used in this transaction? Yes.

2) Was Cash received or paid? Paid. [Decrease = Credit Column] enter the Cash portion of the journal entry

3) Enter the balancing dollar amount in the opposite column as Cash.

Date Account Debit Credit Mar-1 $500 Cash $500

Note that it is customary to enter the debit part first and the credit entry second. The credit entry account title is indented to help set it off from the debit account titles. These practices are used to make the journal entry easier to read and reduce errors in posting.

4) Refer to the information given, check the Chart of Accounts and select the correct account for the second part. This is an example of paying an expense, in this case Leases & Rental Expense.

Date Account Debit Credit Leases & Rental Expense Mar-1 $500 (Other General Admin. Facilities) Cash $500

Another example. On March 20th, the transit system purchased $1,000 in office equipment on credit.

1) Is Cash used in this transaction? No. ( You will use ―cash‖ as a temporary holder.)

2) Was Cash received or paid? Paid. [Decrease = Credit Column] enter the Cash portion of the journal entry.

3) Enter the balancing dollar amount in the opposite column.

Date Account Debit Credit Mar-20 $1000 ―cash” (used as a temp. holder) $1000

Notice that I have roughed in the structure of the journal entry, but the actual accounts have not been entered yet.

4) Refer to the information given, check the Chart of Accounts and select the correct account for the second part. This is an example of buying equipment, in this case we will use the account ―Other Materials & Supplies.‖

5) Refer to the Chart of Accounts and replace "cash" with the appropriate account, which will usually end with "Payable" or "Receivable" such as Accounts Payable, Interest Receivable, etc.

In this case, we will use Accounts Payable, one of the most frequently used accounts. Accounts Payable represents what we owe others.

Date Account Debit Credit Mar-20 Other Materials & Supplies $1000 Accounts Payable $1000

These are all examples of simple journal entries. There is one debit and one credit. Some transactions might involve more then two accounts, and we would use three or more lines to write those entries. These are called compound journal entries (or complex journal entries). There is no limit to the number of debit or credit accounts that can be included in a journal entry. All necessary accounts will be used. The journal entry will balance, regardless of the number of accounts used.

Let's try an example of a compound journal entry. On March 5th, the transit system buys a bus and van for $100,000. They make a down payment of $20,000 and sign a loan note with their bank for the balance. The bus was purchased used for $75,000 and the van was new at a cost of $25,000

1) Is Cash used in this transaction? Yes & No. [We will use the substitution method along with Cash]

2) If Cash were used...Would it be received or paid? Paid. [Decrease = Credit Column] enter the Cash portion of the journal entry. We will use Notes Payable to enter the $80,000 we borrowed from the bank, on its own line, but on the same side as Cash - the Credit side in this case.

Date Account Debit Credit March-5

Notes Payable $80,000 Cash $20,000

3) Enter the balancing dollar amount in the opposite column.

4) Refer to the information given, check the Chart of Accounts and select the correct account for the second part. I left 2 blank lines because I knew we had both a bus and a van, which should be entered separately for future tracking purposes.

Date Account Debit Credit June-5 Vehicle – Bus $75,000 Vehicle - Van $25,000 Notes Payable $80,000 Cash $20,000 ------Total $100,000 $100,000

In this example you should total the columns to show that the journal entry is in balance.

You have now seen samples of ―simple‖ and ―complex‖ journal entries. Now let’s take the information from these journals and post them to ledger accounts.

2. Post Journal Entries to Ledgers (or ―T‖) Accounts

Posting to the Ledger

Journal entries must be posted to the individual ledger accounts on a regular basis. In computer based systems this is done automatically whenever journal entries are made. In a manual system the journal entries must be posted on a daily, weekly or monthly basis, called "batch posting."

When you post, you simply take each line from the journal entries and transfer the amounts to the corresponding ledger accounts. You have to be very careful to post all journal entries, use the correct dollar amounts, and enter the dollar amounts in the correct column of the correct account. Needless to say, use of a manual system does introduce the possibility of human error, so you should be as careful as possible during this process.

Sample ledger page

Account Title Date Description Debit Credit Balance

The ledger page has an additional column to calculate the balance in the account. The balance is updated after each entry.

A Credit balance is usually indicated by enclosing the number in parentheses: $ (500) would indicate a $500 Credit balance.

Accounts Payable Date Description Debit Credit Balance Jan-1 Balance forward from Dec-31 (500)

The dollar sign ($) is usually omitted in actual practice.

Entries are transferred (posted) from the journal to the ledger pages on a regular basis. Accounting is nothing more than a way to organize information so it is useful to persons responsible for making financial and business decisions. A large number of people use the same concepts, methods, etc. on a daily basis. You can too.

Now let’s post sample transactions to the individual ledger accounts:

Cash Date Description Debit Credit Balance March-1 Loan from Government 25,000 25,000 March-1 Payment of Rent 500 24,500 March-5 Purchase of Vehicles 20,000 4,500 March-20 Collected Fares 100 4,600

Vehicles Date Description Debit Credit Balance March 5 Purchase of Vehicles - Bus 75,000 75,000 Purchase of Vehicles – Van 25,000 100,000

Accounts Payable Date Description Debit Credit Balance March-20 Purchase of Supplies on Account 1,000 (1,000)

Loans/Notes Payable Date Description Debit Credit Balance March-1 Loan from Government 25,000 (25,000) March-5 Purchase of Vehicles – Bank Loan 80,000 (105,000)

Passenger Fares Date Description Debit Credit Balance March-20 Collected Fares 100 (100)

Leases & Rental Expense Date Description Debit Credit Balance March-1 Payment of Rent 500 500

Other Materials & Supplies Expense Date Description Debit Credit Balance March-20 Purchase of Supplies 1,000 1,000

Keep in mind that this is a simple example. In an actual ledger book, each account would have it’s own page or group of pages depending on the number of projected transactions during the year. Some small companies also find using simple ―T‖ accounts works best for their situation. 26

Using T-Accounts

A T-Account is just a simple way to represent a ledger account. It's handy for basic accounting because you can make quite a few T-Accounts on one page, and post journal entries quickly. When you post to T-Accounts, make a large T and write the name of the account above it. Write the debit entries on the left half of the T, and credit entries on the right side of the T. Draw a line underneath the entries, net all the entries together, and put the balance on the correct side of the T below the line. T-Accounts can only be used successfully if you have very limited transactions or you are trying to convert ―cash‖ books to ―accrual‖ books for reporting purposes.

Accountants record increases in asset, expense, and

owners’ equity accounts on the debit side, and they record increases in liability, revenue, and owners’ equity accounts on the credit side. An account's assigned normal balance is on the side where increases go because the increases in any account are usually greater than the decreases. Therefore, asset, expense, and owner's drawing accounts normally have debit balances. Liability, revenue, and owner's capital (equity) accounts normally have credit balances. To determine the correct entry, identify the accounts affected by a transaction, which category each account falls into, and whether the transaction increases or decreases the account's balance. You may find the following chart helpful as a reference.

Occasionally, an account can differ from what would be a normal balance. For example, a company's checking account (an asset) would have a credit balance if the account is overdrawn.

3. Prepare a Trial Balance

Once you have completed your journal entries for the month’s transactions and posted them to the ledger, you are ready to prepare the trial balance, which is a listing of all account balances.

Based on our journals and ledger, our trial balance at month end would be as follows:

Sample Transit Company Trial Balance March 31, 2008 Cash 4,600 Accounts Receivable Vehicles 100,000 Accounts Payable 1,000 Loans/Notes Payable 105,000 Passenger Fares 100 Contract Revenue Labor Fringe Benefits Rent Expense 500 Other Materials & Supplies 1,000 Interest Expense

Totals 106,100 106,100

The trial balance is balanced - but as you might have guessed, we are not finished with the accounting process for the month quite yet.

In reviewing the transactions we notice the following: no labor or fringes have been booked (March payroll will be paid in April), interest expense on the loan for the buses has not been taken into account (no interest is being charged on the government loan) and that $15,000 in unbilled contract revenue is missing.

4. Make Adjusting Entries & Prepare Adjusted Trial Balance

This is where we make adjustments for those items we know are missing.

The payroll for March (being paid in April) is as follows: Labor Expenses $10,000 Fringe Expenses $3,000 Accounts (or Wages) Payable ($13,000) since we are not using cash in March

The bank loan on the buses calls for $400 a month in basic interest (no principle payments yet): Interest Expense $400 Accounts Payable ($400)

And the entry for the unbilled service would be: Accounts Receivable $15,000 Contract Revenue ($15,000)

After writing these journals and posting them to the ledger, our adjusted trial balance would be as follows:

Sample Transit Company Adjusted Trial Balance March 31, 2008 Cash 4,600 Accounts Receivable 15,000 Vehicles 100,000 Accounts Payable 14,400 Loans/Notes Payable 105,000 Passenger Fares 100 Contract Revenue 15,000 Labor 10,000 Fringe Benefits 3,000 Rent Expense 500 Other Materials & Supplies 1,000 Interest Expense 400

Totals 134,500 134,500

At this point you still may be confused on when to use ―payables‖, ―receivables‖ and other accrual accounting items such as ―prepaids‖, ―unearneds‖, etc.

A simple way of looking at these items is to pretend that you set up several envelopes (or holding accounts) to track these items in process.

The first being an envelope of bills you have received but not yet paid – this is accounts payable. If you were to add up all the bills in the envelope related to service in March but not yet paid at the end of March, you would have the amount you would show in ―accounts payable‖.

Now let’s think of other types of obligations you might have but have not yet paid at the end of the month. How about employee times sheets for workdays in the month of March that will not be paid until a payday in April. The value of these would be ―wages payable‖ and the related employer taxes and fringes would also be a ―payable‖.

What about bills you have invoiced (or not yet invoiced) for customers who received service during March but no payment has as yet been received. The items in this envelope would add up to ―accounts receivable,‖ money owed to your agency.

Another type of envelope could be used for items you pay for in advance or ―prepaids‖. For example, if you get a bill for vehicle liability insurance in January for the coming year’s insurance, you would expense 1/12 of the bill in January and the other 11/12ths remain in the envelope until the start of each month when you would expense another 1/12th. This ensures that insurance expense is spread out evenly throughout the year to match the actual coverage period of time.

By the same token, a customer might pay you in advance of providing service. Let’s say that an area agency gives you $24,000 in January to subsidize trips for their clients. These funds would be part of the envelope known as ―unearned revenue‖. Each month you would take out what you need to match the subsidy provided that month and make an accounting entry to move the funds from the ―unearned‖ account, to a revenue account.

In accrual accounting, you will encounter many types of transactions that need to be accounted for in a given month that do not involve the exchange of ―cash‖. The samples above are just some of the holding accounts (or envelopes) you might use to assist in accounting for the transactions.

Once you process all month-end adjustments you are ready to move on to the next step.

5. Prepare Financial Statements

What is a financial statement? What does it tell us? Why should we care?

A business is a financial entity separate from its owners. Each business must keep financial records as required by a number of federal and state laws. But even without laws, keeping good financial records is a very good business practice. Financial information on its own may not make a business successful, but it helps the owner or board of directors make sound business decisions. It can also help a bank or creditor evaluate the company/agency for a loan or charge account. And the IRS will be interested in collecting the appropriate amount of income tax if applicable.

Financial information comes in many forms, but the most important are the basic ―Financial Statements‖. They summarize relevant financial information in a format that is useful in making important business decisions. If this were not possible, the whole process would be a waste of time. Too much information may be equally useless. Financial statements summarize a large number of transactions into a small number of significant categories. To be useful, information must be organized.

Financial statements have generally agreed-upon formats and follow the same rules of disclosure. This puts everyone on the same level playing field, and makes it possible to compare different companies with each other, or to evaluate different year's performance within the same company. There are three main financial statements:

1. Balance Sheet 2. Income Statement 3. Statement of Cash Flows

Each financial statement tells its own story. Together they form a comprehensive financial picture of the company, the results of its operations, its financial condition, and the sources and uses of its money. Evaluating past performance helps managers identify successful strategies, eliminate wasteful spending and budget appropriately for the future. Armed with this information, agencies are better able to make necessary business decisions in a timely manner.

Let’s look at each of the first three financial statements in more detail.

Balance Sheet- The balance sheet provides detailed information about a company’s assets, liabilities and owners’ equity.

Assets are things that a company owns that have value. This typically means they can either be sold or used by the company to make products or provide services that can be sold. Assets include physical property, such as plants, trucks, equipment and inventory. It also includes things that can’t be touched but nevertheless exist and have value, such as trademarks and patents. And cash itself is an asset as are company investments.

Liabilities are amounts of money that a company owes to others. This can include all kinds of obligations, like money borrowed from a bank to launch a new product, rent for the use of a building, money owed to suppliers for materials, payroll a company owes to its employees, environmental cleanup costs, or taxes owed to the government. Liabilities also include obligations to provide goods or services to customers in the future.

Owners’ (or shareholders’) equity is sometimes called capital or net worth. It’s the money that would be left if a company sold all of its assets and paid off all of its liabilities. This leftover money belongs to the shareholders, or the owners, of the company.

The following formula summarizes what a balance sheet shows: ASSETS = LIABILITIES + OWNERS’ EQUITY A company's assets have to equal, or "balance," the sum of its liabilities and owners’ (shareholders') equity.

A company’s balance sheet is set up like the basic accounting equation shown above. On the left side of the balance sheet, companies list their assets. On the right side, they list their liabilities and shareholders’ equity. Sometimes balance sheets show assets at the top, followed by liabilities, with shareholders’ equity at the bottom.

A sample balance sheet: Sample Company Balance Sheet December 31, 200X Assets Liabilities and Capital Current Assets Current Liabilities Cash $12,300 Accounts payable $8,900 Accounts receivable 22,900 Wages payable 11,525 Inventory 32,090 Total Current Liabilities $20,425 Prepaid Insurance 2,500 Long-Term Liabilities Total Current Assets $69,790 Bank Loan Payable 17,500 Fixed Assets Total Long-Term Liability 17,500 Equipment 100,200 Total Liabilities 37,925 Less: Accumulated (78,321) Equity Depreciation Total Fixed Assets 21,879 Owners Capital 53,744 Total Assets $91,669 Total Liabilities/Capital $91,669

The Balance Sheet is divided into three main sections: assets, liabilities, and owners’ equity. These categories are usually further divided as follows:

Assets - Assets are subdivided into current and long-term assets to reflect the ease of liquidation. Cash, for obvious reasons, is considered the most liquid of all assets. Long- term assets, such as real estate or machinery, are less likely to sell overnight or have the capability of being quickly converted into a current asset such as cash.

Current Assets - Current assets are any assets that can be easily converted into cash within one calendar year. Examples of current assets would be checking or money market accounts, accounts receivable, and notes receivable that are due within one year’s time. Examples include but are not limited to:

• Cash - Money available immediately, such as in checking accounts, is the most liquid of all short-term assets. • Accounts receivables - This is money owed to the business for purchases made by customers, suppliers, and other vendors. • Notes receivables - Notes receivables that are due within one year are current assets. Notes that cannot be collected within one year should be considered long-term assets.

Long Term or Fixed assets - These assets include land, buildings, machinery, and vehicles that are used in connection with the business. In most cases a deduction is made to offset the value of these assets as they are used in the business and lose some of their value through normal wear-and-tear. This is know as ―accumulated depreciation‖. Examples include but are not limited to:

• Land - Land is considered a fixed asset but, unlike other fixed assets, is not depreciated, because land is considered an asset that never wears out. • Buildings - Buildings are categorized as fixed assets. • Office equipment - This includes office equipment such as copiers, fax machines, printers, and computers used in your business. • Machinery – Includes machines and equipment used to produce a product or service. • Vehicles - Includes any vehicles used in your business.

Liabilities and Owners’ Equity - This includes all debts and obligations owed by the business to outside creditors, vendors, or banks that are payable within one year, plus the owners’ equity.

Current Liabilities – Examples include but are not limited to:

• Accounts payable - This is comprised of all short-term obligations owed by your business to creditors, suppliers, and other vendors. Accounts payable can include supplies and materials acquired on credit.

• Notes payable - This represents money owed on a short-term collection cycle of one year or less. It may include bank notes, current mortgage obligations, or vehicle payments. • Accrued payroll and withholding - This includes any earned wages or withholdings that are owed to or for employees but have not as yet been paid.

Long-term liabilities - These are any debts or obligations owed by the business that are due more than one year from the current date. Examples include but are not limited to:

• Mortgage note payable - This is the balance of a mortgage that extends out beyond the current year. For example, you may have paid off three years of a fifteen-year mortgage note, of which the remaining eleven years, not counting the current year, are considered long-term.

Owners’ Equity - Sometimes this is referred to as stockholders’ equity. Owners’ equity is made up of the initial investment in the business as well as any retained earnings that are reinvested in the business over the life of the business. Not-for-profit and governmental agencies also have owners’ equity with the value representing the net worth of the organization.

Because the balance sheet informs the reader of a company's financial position at one moment in time, it allows someone—like a creditor—to see what a company owns as well as what it owes to other parties as of the date indicated in the heading. This is valuable information to the banker who wants to determine whether or not a company qualifies for additional credit or loans. Others who would be interested in the balance sheet include current investors, potential investors, company management, suppliers, some customers, competitors, government agencies, and labor unions.

Income Statement - An income statement is a report that shows how much revenue a company earned over a specific time period (usually for a year or some portion of a year). An income statement also shows the costs and expenses associated with earning that revenue. The literal ―bottom line‖ of the statement usually shows the company’s net earnings or losses. This tells you how much the company earned or lost over the period. Income statements also report earnings per share (or ―EPS‖). This calculation tells you how much money shareholders would receive if the company decided to distribute all of the net earnings for the period. (Companies almost never distribute all of their earnings. Usually they reinvest them in the business.)

What are income statements used for? You use an income statement to track revenues and expenses so that you can determine the operating performance of your business over a period of time. Small business owners use these statements to find out what areas of their business are over-budget or under-budget. Specific items that are causing unexpected expenditures can be pinpointed, such as phone, fax, mail, or supply expenses. Income statements can also track dramatic increases in product returns or cost of goods sold as a percentage of sales. They also can be used to determine income tax liability.

To understand how income statements are compiled, think of them as a set of stairs. You start at the top with the total amount of sales made during the accounting period. Then you go down, one step at a time. At each step, you make a deduction for certain costs or other operating expenses associated with earning the revenue. At the bottom of the stairs, after deducting all of the expenses, you learn how much the company actually earned or lost during the accounting period. People often call this ―the bottom line.‖

At the top of the income statement is the total amount of money brought in from sales of products or services. This top line is often referred to as gross revenues or sales. It’s called ―gross‖ because expenses have not as yet been deducted. So the number is ―gross‖ or unrefined. Often times you might make a deduction here for sales you don’t expect to collect on.

Moving down the stairs from the net revenue line, there are several lines that represent various kinds of operating expenses. Although these lines can be reported in various orders, the next line after net revenues typically shows the costs of the sales. This number tells you the amount of money the company spent to produce the goods or services it sold during the accounting period.

The next line subtracts the costs of sales from the net revenues to arrive at a subtotal called ―gross profit‖ or sometimes ―gross margin.‖ It’s considered ―gross‖ because there are certain expenses that haven’t been deducted from it yet.

The next section deals with operating expenses. These are expenses that go toward supporting a company’s operations for a given period – for example, salaries of administrative personnel and costs of researching new products. Marketing expenses are another example. Operating expenses are different from ―costs of sales,‖ which were deducted above, because operating expenses cannot be linked directly to the production of the products or services being sold. Depreciation is also deducted from gross profit. Depreciation takes into account the wear and tear on some assets, such as machinery, tools and furniture, which are used over the long term. Companies spread the cost of these assets over the periods they are used. This process of spreading these costs is called depreciation or amortization.

After all operating expenses are deducted from gross profit, you arrive at operating profit before interest and income tax expenses. This is often called ―income from operations.‖

Next companies must account for interest income and interest expense. Interest income is the money companies make from keeping their cash in interest-bearing savings accounts, money market funds and the like. On the other hand, interest expense is the money companies paid in interest for money they borrow. Some income statements show interest income and interest expense separately. Some income statements

combine the two numbers. The interest income and expense are then added or subtracted from the operating profits to arrive at operating profit before income tax.

Finally, income tax is deducted and you arrive at the bottom line: net profit or net losses. (Net profit is also called net income or net earnings.) This tells you how much the company actually earned or lost during the accounting period. Did the company make a profit or did it lose money?

The following is an example of an income statement:

Sample Company Income Statement For the Year Ended December 31, 200X Sales $462,452 Cost of Goods Sold Beginning Inventory $ 27,335 Add: Purchases 235,689 Total: 263,024 Less: Ending inventory 32,090 Cost of Goods Sold 230,934 Gross Profit 231,518 Expenses Advertising 1,850 Depreciation 13,250 Insurance 5,400 Payroll taxes 8,200 Rent 9,600 Repairs and maintenance 13,984 Utilities 17,801 Wages 98,852 Total Expenses 168,937 Net Income $ 62,581

The Statement of Cash Flows is the third financial statement required by GAAP, for full disclosure. The Cash Flow statement shows the inflows and outflows of cash over a period of time, usually one year. The time period will coincide with the Income Statement. In fact, account balances are not used in the Cash Flow Statement. The accounts are analyzed to determine the sources (inflows) and uses (outflows) of cash over a period of time.

Each part reviews the cash flow from one of three types of activities: (1) operating activities; (2) investing activities; and (3) financing activities.

Operating Activities - The first part of a cash flow statement analyzes a company’s cash flow from net income or losses. For most companies, this section of the cash flow statement reconciles the net income (as shown on the income statement) to the actual cash the company received from or used in its operating activities. To do this, it adjusts net income for any non-cash items (such as adding back depreciation expenses) and adjusts for any cash that was used or provided by other operating assets and liabilities.

Investing Activities - The second part of a cash flow statement shows the cash flow from all investing activities, which generally include purchases or sales of long-term assets, such as property, plant and equipment, as well as investment securities. If a company buys a piece of machinery, the cash flow statement would reflect this activity as a cash outflow from investing activities because it used cash. If the company decided to sell off some investments from an investment portfolio, the proceeds from the sales would show up as a cash inflow from investing activities because it provided cash.

Financing Activities - The third part of a cash flow statement shows the cash flow from all financing activities. Typical sources of cash flow include cash raised by selling stocks and bonds or borrowing from banks. Likewise, paying back a bank loan would show up as a use of cash flow.

If we take our sample adjusted trial balance for our simple transit transactions we would create financial statements that look as follows:

Sample Transit Company Balance Sheet March 31, 2008 Assets Liabilities and Capital Current Assets Current Liabilities Cash $4,600 Accounts payable $14,400 Accounts Receivable 15,000 Total Current Liabilities $14,400 Prepaid Items 0 Long-Term Liabilities Total Current Assets $19,600 Note & Loan Payable 105,00 Fixed Assets Total Long-Term Liability 105,000 Vehicles 100,000 Total Liabilities 119,400 Less: Acc. Depr. (0) Equity Total Fixed Assets 100,000 Current Income/Loss 200 Total Assets $119,600 Total Liabilities/Capital $119,600

Sample Transit Company Income Statement For the Period Ended March 31, 2008 Revenue Passenger Fares $ 100 Contract Revenue 15,000 Total Revenue $15,100

Expenses Labor $10,000 Fringes 3,000 Rent 500 Other M&S 1,000 Interest 400 Total Expenses $14,900 Net Income $ 200

6. Journalize & Post Closing Entries & Prepare Closing Trial Balance (done at year-end only)

Closing the books at the end of the year - At the end of each year, the books are closed. What this means is that certain account balances are reset to zero, in preparation of a new year. Since the Income Statement reports information on a yearly basis, the income statement accounts are the ones that will be closed. We close the income statement accounts so we can start counting again for a new year. These accounts are all the revenue and expense accounts represented in an agency’s net income.

How to close an account - You close an account by looking at its balance, then entering a journal entry that is the exact opposite of its account balance. For instance, if an account has a $1,000 debit balance, we would enter a $1,000 credit to bring the account to zero.

General Ledger Insurance Expense Date Description Debit Credit Balance Dec-31 Year end balance $1,000 Dec-31 Year end closing entry $1,000 $0

Here we see the Insurance Expense ledger account. It has a debit balance of $1,000. The closing entry credits the account, and brings the balance to zero. The account is now ready to begin entering transactions for the next year.

We will close all revenue and expense accounts this way. We will leave all balance sheet accounts alone.

The Income Summary Account - Income Summary is an account used for a single purpose to close the books at the end of the year. All income statement accounts are closed to the Income Summary account. All revenues accounts are debited, and the Income Summary account is credited for the total of the debits. Then all expense accounts are credited, and the Income Summary account is debited for the total of all credits. At this point all revenue and expense accounts have a zero balance. The balance in Income Summary is equal to the net income or net loss for the year.

Finally the Income Summary account has to be closed. We make the entry necessary to bring that account to zero, and post the opposite side of the entry to the Retained Earnings account. We usually prepare a Post-Closing Trial Balance to make sure all revenue and expense accounts were closed out to zero, and none remain with a balance.

Section Three – Ohio Rural Transit Systems & ODOT Quarterly Invoice Report

Rural transit systems are required to report their financial date to ODOT on a quarterly basis. This data must be based on accrual accounting. Section 5 provides the four- page ODOT quarterly invoice and preparation instructions.

While this Section does not address every possible situation, it does provide information on each line item and highlights areas to consider when reporting financial information using accrual accounting.

Revenue Transactions

A. Transportation Revenues

401 Passenger Fares – The farebox receipts that should be reported for a given period are those that are placed into the farebox for service performed during the days of the reporting period. If you empty and deposit fares each night/day be careful to ensure you pay close attention to the funds at the beginning and end of the period to make sure you are reporting the funds in the correct period. Do not rely on the bank deposit date because you may deposit funds for the 31st of March service on April 1st (or even when you take them to the bank on the 31st at close of business, the bank may not credit them to your account until the next business day).

402 Special Transit Fares (Contract Revenues) – As with farebox receipts, you must include the value of all service provided in the correct accounting period. This is an area where it can be easy to make a mistake in posting since you will usually bill for the service in the month following that in which the service was provided. For example, if you provide 500 trips to MRDD during March at $9 per trip, you would most likely send them an invoice for $4,500 in April. Under accrual accounting you would book the $4,500 in revenue in March by crediting this account and debiting Accounts Receivable (which indicates that MRDD owes you the $4,500). When MRDD pays the bill on a future date you would credit Accounts Receivable, removing the balance from your books, and debit cash, which increases your cash balance. You would not hit this account at time of payment because you previously booked the sale.

405.02 Incidental Charter Service – Same as above.

406.03 Advertising – this can be tricky because you will need to review any ad contracts you might have. For example, if you have an advertising contract wherein the terms call for a one-time payment for an annual bus advertisement, you would need to take the annual revenue figure and divide it by 12 (the normal number of accounting periods) and book an equal amount of Advertising sales into each period. This works the same for contracts of any duration (3 months, 6 months, etc.). The key is to spread the revenues fairly over the life of the contract because this is the same period of time in which you are providing a service.

B. Non-Transportation Revenues

407.01 Sale of Maintenance Services – Like Contracted Service, the key is to book the revenue in the same accounting period in which you performed the service. Sometimes you may find that you start a job in one accounting period and complete it in another. True accrual accounting would require that you prorate the value of the job between the two different periods but if the amount is small and not material to the bottom line, you can use the date you completed the entire job as the date you make the book entry.

407.04 Investment Income – This area may also require some careful consideration. If you have accounts that pay simple interest then you just need to ensure that you are booking the interest income in the period it was earned, not the month you got the bank statement. For example your March bank statement might show $80 of interest posted to your account on March 31st or even April 1st in some cases. If the interest was for March then book it in March, even if you don’t receive your bank statement until the 10th of April.

409 Local Cash Grants & Reimbursements – This area depends on the nature of the grant and any restrictions on the local cash or terms of reimbursement. For example, if your jurisdiction gives you $12,000 as an annual grant to support transit operations for the year, then you would book 1/12th equal shares each month. If your town gives you $1,200 in February toward their local share match for January, then that entire amount should be booked in January.

412.02 State Senior Citizen Fare Assistance – The amount received can often be equally divided and booked into each period covered by the award. This is the easiest method. Some systems might desire to track actual rides and book the subsidy based on actual rides until the funds are exhausted. This method is also correct for accounting purposes but could result in no revenue being booked in the later part of the year if all the funds were booked in earlier periods.

413 Federal Cash Grants & Reimbursement - The amount of revenue to book in a period would be based on your ODOT invoice calculations, not on the amount ODOT has advanced your agency. For example, when you complete the ODOT invoice it might indicate $28,550 as the amount of eligible assistance for that quarter even though

ODOT may have advanced you $30,000 for that quarter’s operations. The $28,550 is the amount which should be included in this category. This should be one of the last entries you make since you would not know the number until processing all other revenues and expenses.

430 Contributed Services – Assuming you have ODOT’s approval to book these revenues, you would need to carefully ensure that the accounting period in which the actual service was performed is the period in which the revenues are booked. A careful review of these items should ensure they are accounted for correctly.

499 Other Revenues – Again, the key here is to carefully review each item and determine the accounting period in which you earned the revenue, which may differ from the period in which you received the revenue.

Expense Transactions

501 Labor (Wages) 501.01 Operators Salary 501.02 Other Salaries & Wages

The wages (or labor) that should be reported in a given accounting period are those wages which represent work actually performed in that period. For example if your bus operators work March 23rd to March 29th and pay day is on April 4th (the following Friday) the wages should all be reported in March because that is the month when the work was completed. The actual pay date has no relevance here. You would book the wage expense in March and create an entry to a wages payable account to record the liability of wages due at the end of March.

If we look at the following week, a more unique situation develops. The actual workweek would be March 30th to April 5th with payday being on April 11th. Since the work performed spanned two different months, the wages should be split between the two months. The question is how to reasonably allocate the wages between the two accounting periods. The most accurate method would be to actually calculate the wage expense for the actual work done on March 30th and March 31st. This could prove time consuming. An acceptable alternative would be to take the totals for the weekly payroll and split them using reasonable averages or predefined percentages. For example, if your system operates Monday through Friday and each day is fairly consistent, then you could charge 20% of the payroll (one workday) to March and 80% (4 workdays) to April. If your operations are more complex, you might develop a reasonable method based on past service history and expenses. The important factor is to be consistent in your methodology.

502 Fringe Benefits 502.15 Fringe Benefits

Fringe benefits that tie directly to wages (PERS, Unemployment Taxes, Medicare, etc.) should be allocated and posted in the same manner as are wages. For other fringe benefits, for example health insurance, the expense should be posted in the accounting period for which the service covered. For example, if your insurance contract requires your agency to pay the April health insurance by March 25th, the expense would be posted in April because that is the month for which the coverage was valid and a service received. The payment in March has no bearing here. In March you would make an entry to prepaid health insurance to show on your books that the bill was paid early.

503 Services 503.01 Management Service Fee 503.02 Advertising Fees 503.03 Professional/Technical Services 503.04 Temporary Help 503.05 Contract Maintenance Services 503.06 Custodial Services 503.99 Other Services

Service should be expensed in the accounting period in which the service was performed. Sometimes this can be tricky because you may not as yet received an actual invoice for the service but need to close your books for a given accounting period. Let’s look at two examples. The first is that you hire a temporary worker to perform ride checks during the month of March. The temp agency does not bill you until April 9th and you pay it on the 12th. When you get the invoice you would book the expense in March because that was when the service was performed, the offset to the entry would be an entry to accounts payable to reflect the obligation to pay as of the end of March. When you actually pay the bill in April, you would reverse the entry in accounts payable and hit the cash account to show that the bill has been paid. Notice that you do not hit any expense account in April because the work was performed in March and you booked the expense then.

In the second example let’s assume that your agency signs a contract with a firm to do a rider survey over the months of March and April in the amount of $4,000. In this case you will not get a bill from the vendor until the end of April at the earliest and most likely not until sometime in May. You have two options, you could ask for a progress billing for the work done in March, or you could estimate what percentage of the work was done in March and book a percentage of the $4,000 contract amount in March. In either case, your expenses should reflect the work performed under this contract during March on the March financial statements.

Each service will be unique and you will need to be aware of what services were performed during the accounting period and make appropriate adjustments to ensure expenses are reflected in the correct accounting period.

504 Materials and Supplies Consumed 504.01 Fuel & Lubricants 504.02 Tires & Tubes 504.99 Other Materials & Supplies

Material and supplies should be accounted for in the period in which they are used or consumed. For example if you purchase six bus batteries at $100 each because you got a good deal, they should be placed in an inventory (asset) account until they are actually installed on a vehicle. Once installed, they would be removed from the inventory account and expensed. The same applies to fuel purchases. If your system does not purchase fuel or parts in advance, then you only need to ensure that you book the expense in the accounting period for which the item was used. For example, if you purchase one battery and install it in March but are not billed for it until April, you need to input the invoice on your books at the end of March. The actual invoice date has no bearing because you installed the item in March. This ―timing‖ issue between received date and invoice date is very common and something you need to watch for.

505 Utilities 505.02 Utilities Other Than Non-Propulsion

Utilities are often invoiced for time periods that do not coincide with your accounting periods - which can cause some confusion and concern. The most correct method on dealing with inconsistent time periods would be to take an invoice, for example from the electric company, and allocate the expense between accounting periods based on the service dates. For example, if the bill covers March 16th to April 15th then you would book half in March in and half in April. This can be very time consuming if your agency receives a number of regular bills. If a bill or bills represent a routine cycle, an acceptable option is to post the entire bill in just one month. Just ensure that you are consistent going forward so that you are only reporting one bill in each month (and not two in one month and none in the next, etc.). For example, for the bill referred to above, you would post the whole bill in April, the next bill would be posted in May, etc. While not an exact representation of costs in each month it is close enough to be acceptable when there is a consistent expense!

506 Casualty and Liability Costs 506.01 Premiums for Physical Damage 506.02 Recoveries of PD 506.03 Premium Public Liability/Property Damage 506.08 Premiums for Other Corp. Ins. 506.09 Other Corporate Loses (OCL) 506.10 Recoveries of OCL

Vehicle and property insurance can be tricky because insurance companies often require advance payments (often times for 6 to 12 months of coverage). If this is the case, you will need to take the bill and divide it by the number of periods covered and book the proper insurance expense in each period. You accomplish this by using a prepaid insurance account for the initial bill and payment. Then each month you transfer out the monthly share of the coverage and expense that in the proper period. While this can be a tricky transaction, you usually only have a few of these a year so once you master the concept you should be fine.

507 Taxes 507.03 Property Taxes 507.04 Vehicle Licensing & Registration Fees 507.05 Fuel/Lube Taxes 507.99 Other Taxes

Like insurance, some taxes are billed just once or twice a year and they are usually billed after the fact. In this case you would need to estimate your monthly tax expense, make estimated expense entries on the books and make an adjustment in the month when you actually get the bill.

Another thing to keep in mind is that fuel taxes paid are booked here and any future refunds you receive on taxes paid should be offset in this section, not booked as misc. revenue.

508 Purchased Transportation Services 508.01 Purchased Transportation Service

This item follows the same principles of services listed above under ―Services 503‖.

509 Miscellaneous Expenses 509.01 Dues and Subscriptions 509.02 Travel and Meetings 509.03 Bridge Tunnel & Highway Tolls 509.07 Bad Debt Expense 509.08 Advertising/Promotions Media 509.99 Other Miscellaneous Expenses

These expenses cover a host of items. The key is to ensure the cost of each is booked in the accounting period in which the service, item, charge-off, etc. was received or recognized by your agency.

511 Interest Expense 511.01 Interest Expense

Interest expense can be billed in advance or in arrears so be sure to determine the time period for which the interest expense applies and book it in that period.

512 Leases and Rentals 512.04 Passenger Revenue Vehicles 512.05 Service Vehicles 512.07 Engine Houses Car Shops Garage 512.12 Other General Admin. Facilities

Same situation as interest expense, determine the period covered by the billing and book the expense in the proper period.

513 Depreciation 513.04 Depreciation Passenger Revenue Vehicles 513.05 Depreciation Service Vehicles

FTA requires the use of straight line depreciation so if you are using this expense your monthly entries should be fairly consistent unless you add a new asset or remove an asset from service.

600 Other costs 600.01 Other Costs

Everything discussed above could be applied here, depending on the item in question.

Section Four – Accrual Accounting Options

Rural Transit systems are required to report their quarterly financial data to ODOT on an accrual basis. Options for meeting this requirement include: keeping accrual books manually, using available software products, converting cash data to accrual data at the end of each quarter, and hiring professional assistance. Each system most likely currently operates using a bookkeeping method unique to them (with many being part of a larger organization which may be keeping the agency/city/county books on a cash basis) so there is no ―one size fits all‖ approach to meeting the accrual accounting requirement.

Let’s look at the four options in more detail:

Manual Systems – Grantees may choose to keep their books in the accrual format manually, i.e., using hand-written journals, ledgers, and creating financial statements by hand. This method, while time consuming and subject to math errors, might work for a very small system with limited transactions. It might also be the best solution if a system has a bookkeeper or accountant who while very familiar with their system and its operations and history, is not comfortable using computer programs.

A variation on the pencil and paper route could be to rely on Excel spreadsheets if your staff has spreadsheet experience.

Off-the-Shelf Software – Many systems may prefer using off-the-shelf accounting software. A basic program such as QuickBooks or Peachtree Accounting (or any similar type program) should be more than adequate for most rural systems. Both of these programs also have a payroll module if you do your payroll in-house.

Most of these programs require basic transactions to be entered into pre-designed templates and the systems does all the journals, ledgers, account postings, etc. Such software will also prepare basic financial statements and other valuable reports (such as who owes you money, whom you owe money, etc.) Among other features, many of these software programs have features that allow the user to design custom reports and track statistical data.

The key to effective use of such software is assuring a thoughtful initial set-up by understanding how the software handles transactions. It is highly recommended that, if at all possible, you set up your chart of accounts to match the ODOT version. This will make your reporting much easier at quarter end. If you desire increased data breakdown and analysis you can create sub-accounts or departments to further breakdown the ODOT chart of accounts. At quarter end you would need to roll these sub-accounts into the main accounts for ODOT reporting.

Some systems may already be using a software package with ―cash accounting‖ and it may be possible to convert to ―accrual accounting‖ or to create a replacement company using the accrual method and prepare the necessary one time items to convert from cash to accrual.

These programs continue to gain in popularity. Consequently, you might be able to locate a peer transit system using a software package who can assist you in setting up your system and help you move quickly along the learning curve. In addition, training is widely available on the most popular programs with classes often offered at local colleges, training centers, etc. Self-taught courses are also available on-line and at the local bookstore.

Conversion of Cash Data to Accrual Format at Quarter End – If you are part of a larger organization that maintains their books on a cash basis and you do not wish to keep a separate set of books using accrual accounting, you could manually convert the cash data to accrual at the end of each quarter. This method involves reviewing the cash based transactions and moving them to the proper quarter for accrual purposes. It also will require booking items that might be paid or received in the future quarter if they would have been booked in the current quarter using accrual accounting.

This method could prove challenging if you have a large number of transactions or do not have an accounting background. Checks and balances would need to be set up to ensure that items are not missed, or even double-counted during this conversion process. If you are part of a larger organization, you may have someone on staff with the proper knowledge to assist with this process.

Professional Assistance – Finally, you may find that using the services of an outside bookkeeper or accountant is the optimal solution for your organization. Depending on the size of your agency and the number of transactions, you may only need these services once a month or even just at quarter end. Many professionals can train you in entering the basic transactions and data into a software package and then periodically review the data, discuss open items, make any adjustments and prepare your financial statements. Rates for this service can vary depending on your requirements and the local market. For an agency that lacks the in-house expertise, however, this may be the most cost effective approach to assure accuracy and compliance with your annual audit requirements.

Section Five – Exhibits and Samples

ODOT Chart of Accounts

ODOT Office of Transit has the Rural Chart of Accounts on their website as part of the Rural Manual.

Steps for Completing the ODOT Quarterly Invoice

The current ODOT Rural Transit Invoice and Instructions follow:

Page 1: ODOT Rural Transit Quarterly Invoice

Page 2: ODOT Rural Transit Quarterly Invoice

RURAL TRANSIT PROGRAM Quarterly Operating Invoice 0 Project No. 0 QUARTER ENDING 1/0/1900

OPERATIONS ADMIN TOTAL Vehicle Operations Vehicle Maintenance Non-Vehicle Maintenance General Admin Non-Eligible (Excluding 010 041 042 160 199 Non-Eligible) 501 LABOR XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX 501.01 Operator's Salary $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 501.02 Other Salaries & Wages $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX 502 FRINGE BENEFITS XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX 502.15 Fringe Benefits $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX 503 SERVICES XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX 503.01 Management Service Fees XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX $0.00 $0.00 $0.00 503.01 Advertising Fees XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX $0.00 $0.00 $0.00 503.03 Professional/Techn. Services $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 503.04 Temporary Help $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 503.05 Contract Maintenance Services XXXXXXXXXX $0.00 $0.00 $0.00 $0.00 $0.00 503.06 Custodial Services XXXXXXXXXX XXXXXXXXXX $0.00 $0.00 $0.00 $0.00 503.99 Other Services XXXXXXXXXX XXXXXXXXXX $0.00 $0.00 $0.00 $0.00 XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX 504 MATERIALS AND SUPPLIES CONSUMED XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX 504.01 Fuel & Lubricants $0.00 $0.00 XXXXXXXXXX $0.00 $0.00 $0.00 504.02 Tires & Tubes $0.00 $0.00 XXXXXXXXXX $0.00 $0.00 $0.00 504.99 Other Materials & Supplies $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX 505 UTILITIES XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX 505.02 Utilities Non Propulsion XXXXXXXXXX $0.00 XXXXXXXXXX $0.00 $0.00 $0.00 XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX 506 CASUALTY AND LIABILITY COSTS XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX 506.01 Physical Damage XXXXXXXXXX $0.00 XXXXXXXXXX $0.00 $0.00 $0.00 506.02 Recoveries of PD XXXXXXXXXX $0.00 XXXXXXXXXX $0.00 $0.00 $0.00 506.03 Prem Public Liab/Prop Damage XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX $0.00 $0.00 $0.00 506.08 Premiums for Other Corp. Ins. XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX $0.00 $0.00 $0.00 506.09 Other Corporate Losses OCL XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX $0.00 $0.00 $0.00 506.10 Recoveries of OCL XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX $0.00 $0.00 $0.00

Page 3: ODOT Rural Transit Quarterly Invoice OPERATIONS ADMIN TOTAL Vehicle Operations Vehicle Maintenance Non-Vehicle Maintenance General Admin Non-Eligible (Excluding 010 041 042 160 199 Non-Eligible)

507 TAXES XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX 507.03 Property Taxes XXXXXXXXXX $0.00 $0.00 $0.00 $0.00 $0.00 507.04 Vehicle Registration Fees $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 507.05 Fuel/Lube Taxes $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 507.99 Other Taxes XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX $0.00 $0.00 $0.00 XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX 508.01 PURCHASED TRANS. SVC. XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX 508.01 Purchased Transportation Svce $0.00 XXXXXXXXXX XXXXXXXXXX $0.00 $0.00 $0.00 XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX 509 MISCELLANEOUS EXPENSES XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX 509.01 Dues and Subscriptions XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX $0.00 $0.00 $0.00 509.02 Travel and Meetings XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX $0.00 $0.00 $0.00 509.03 Bridge Tunnel & Highway Tolls XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX $0.00 $0.00 $0.00 509.07 Bad Debt Expense XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX $0.00 $0.00 509.08 Advertising/Promotion Media XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX $0.00 $0.00 $0.00 509.99 Other Miscellaneous Expense $0.00 XXXXXXXXXX XXXXXXXXXX $0.00 $0.00 $0.00

511 INTEREST EXPENSE XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX 511.01 Interest Expense XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX $0.00 $0.00 $0.00 XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX 512 LEASES AND RENTALS XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX 512.04 Passenger Revenue Vehicles $0.00 XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX $0.00 $0.00 512.05 Service Vehicles XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX $0.00 $0.00 $0.00 512.07 Engine Houses Car Shops Garage XXXXXXXXXX $0.00 XXXXXXXXXX XXXXXXXXXX $0.00 $0.00 512.12 Other General Admin Facilities XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX $0.00 $0.00 $0.00 XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX 513 DEPRECIATION & AMORTIZATION XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX 513.04 Depr-Passenger Rev. Vehicles $0.00 XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX $0.00 $0.00 513.05 Depeciation Service Vehicles XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX $0.00 $0.00 $0.00 XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX 600 OTHER COSTS XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX 600.01 Other Costs $0.00 $0.00 $0.00 $0.00 $0.00 $0.00

SUBTOTAL COST $0.00 $0.00 $0.00 $0.00 $0.00 $0.00

TOTAL OPERATIONS & ADMIN COSTS XXXXXXXXXX $0.00 XXXXXXXXXX $0.00 XXXXXXXXXX XXXXXXXXXX

TOTAL OPERATING COSTS XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX $0.00

Page 4: ODOT Rural Transit Quarterly Invoice

( 1) TOTAL FEDERAL RURAL FUNDS ELIGIBLE TO DATE IN0 $0.00 ( 2) -TOTAL FEDERAL RURAL OPERATING FUNDS RECEIVED BY THE END OF THIS QUARTER $0.00 ( 3)=(OVERPAYMENT) UNDERPAYMENT OF FEDERAL RURAL OPERATING FUNDS TO DATE $0.00

(4) FEDERAL RURAL OPERATING GRANT CONTRACT AMOUNT $0.00 ( 5) -TOTAL FEDERAL RURAL OPERATING FUNDS RECEIVED BY THE END OF THIS QUARTER $0.00 ( 6)=TOTAL FEDERAL RURAL OPERATING FUNDS REMAINING AT THE END OF THIS QUARTER $0.00

( 7) TOTAL STATE OPERATING FUNDS ELIGIBLE BY THE END OF THIS QUARTER $0.00 ( 8)-TOTAL STATE OPERATING FUNDS RECEIVED BY THE END OF THIS QUARTER $0.00 ( 9)=(OVERPAYMENT) UNDERPAYMENT OF STATE OPERATING FUNDS TO DATE $0.00

(10) STATE OPERATING GRANT CONTRACT AMOUNT 0 $0.00 (11)-TOTAL STATE OPERATING FUNDS RECEIVED BY THE END OF THIS QUARTER $0.00 (12)=TOTAL STATE OPERATING FUNDS REMAINING AT THE END OF THIS QUARTER $0.00

I HEREBY CERTIFY THAT THE INFORMATION CONTAINED WITHIN THIS INVOICE IS CORRECT TO THE BEST OF MY KNOWLEDGE. COPIES OF THE DOCUMENTATION FOR PROJECT EXPENDITURES AND REVENUES ARE BEING RETAINED IN THE PROJECT FINANCIAL FILES.

(DATE) SIGNATURE OF PROJECT SERVICE PROVIDER)

(DATE) *SIGNATURE OF PROJECT APPLICANT (GRANTEE)

*AS AUTHORIZED IN THE OPERATING RESOLUTION

Operating Invoice and Instructions

Revised 1/15/2008)

RURAL TRANSIT INVOICE INSTRUCTIONS

ODOT’s Rural Transit Invoice is reported using an Excel spreadsheet. These instructions provide a step by step process for data entry and submission to ODOT.

There are 4 pages to the invoice. The grantee enters information on the first three pages. The revenue information must be entered on the left side of page 1 in all of the shaded areas. This includes the state and federal contract amounts and the state and federal amounts received by the end of the quarter for which you are submitting the invoice.

The expenditures must be listed on pages 2 and 3. The rest of the invoice is automatically calculated. In order to have an eligible expenditure, you must have listed on the application budget summary that you anticipated an expenditure in a specific line item.

The spreadsheet is set-up as a stand alone file and does not connect to any accounting program. You are required to enter all financial data manually into the spreadsheet.

The ―Blue Fields‖ in the spreadsheet are data entry areas. All other areas are protected to prevent alteration of formulas. If you need to modify formulas or have problems with any function of this spreadsheet please call your Rural Transit Representative immediately. Step 1: Enter the Grantee Name on line B-1. This is the grantee name per the ODOT contract not the transit system name.

Step 2: Enter the RPT # as per your rural contract on line B-2. The RPT# is located on the cover page of the ODOT contract.

Step 3: Enter the Quarter Ended on line E-4. Use one of the following quarter ending dates:

First Quarter: March 31 Second Quarter: June 30 Third Quarter: September 30 Fourth Quarter: December 31

Step 4: Enter the Covering Dates. These dates designate the cumulative period covered.

The Beginning Date is entered on line E-5. This date will not change until the first quarter of the next year. The Ending Date is entered on line E-6. This is the same as the quarter ended date. Use one of the following period covered dates: 55

First Quarter: January 1 - March 31 Second Quarter: January 1 - June 30 Third Quarter: January 1 - September 30 Fourth Quarter: January 1 - December 31

Step 5: Enter the Calendar Year date on line C-7, ―Federal Contract Amount For‖, this is the calendar year date that you are submitting the invoice for, i.e. expenses for CY 2008 enter 2008 on line C-7. Enter the Calendar Year date on line C-9 for ―State Operating Grant Contract Amount For‖. This information can be found in your Rural Transit Grant Contract.

Step 6: Enter the Federal Contract Amount on line E-7. This information can be found in your Rural Transit Grant Contract.

Step 7: Enter the ―Total Federal Operating Funds Received By The End Of This Quarter‖ on line E-8. Include all YTD eligible Federal funds received through the Rural Transit Grant Program as of the end of the reporting quarter.

Step 8: Enter the State Contract Amount on line E-9. This information can be found in your Rural Transit Grant Contract.

Step 9: Enter the ―Total State Operating Funds Received By The End Of This Quarter‖ on line E-10. Include all YTD eligible State funds received through the Rural Transit Grant Program as of the end of the reporting quarter.

Step 10: Enter Revenues. Beginning on line D-14, enter all appropriate revenue. All revenues are cumulative. DO NOT enter an amount on line D-25 for Local Cash. This amount will calculate automatically.

Step 11: Enter Eligible and Non-Eligible Expenses beginning on line D-56 on page 2 of the invoice and continue through page 3 until all expenses are recorded. All expenses are cumulative. The spreadsheet will automatically calculate a total for each line item. Non-eligible expenses will not be included in the total.

Your invoice is now complete. Review the data entry for errors and make necessary corrections. To print the invoice, click on the print I-Con located at the top of the spreadsheet. The print area has been pre-set to produce each page separately. Submit your completed invoice via e-mail to your ODOT representative. You will also need to keep a hard copy in your file.

It will be necessary to save each quarterly invoice with a different file name. The file name is saved as County Name Quarter# Year#.xls. For example: Athens County second quarter invoice file name is Athens County Quarter 2 Year 2008) If you have questions about your file name, contact your ODOT representative.

Submit the invoice to ODOT via e-mail to [email protected] Please type in your grantee name on the Subject line of the e-mail so your submission is easily identifiable.

Rural Transit Operating Invoices must be sent to ODOT by the 15th of the month following the end of the quarter except the 4th quarter which the end of year invoice is due by February 28th. If the 15th falls on a weekend or a holiday then the due date falls to the next open day of business.

The following are the quarterly due dates:

First Quarter: April 15 Second Quarter: July 15 Third Quarter: October 15 Fourth Quarter: February 28

If you have any questions contact your Rural Transit Representative for further explanation.

Page 4 Overview

There are no entry fields on the last page of the invoice. All amounts pull from page 1 of the invoice. The fields on page 4 are protected so if there are problems found contact your Transit Representative immediately.

Line 1 is the Total Federal Rural Funds Eligible to date. This amount carries forward from page 1, cell I-20. Line 2 carries forward from page 1 and is the total federal rural operating funds received by the end of the quarter. Line 3 is the difference, the overpayment or underpayment that must be subtracted or added to the amount of the next payment the system receives.

Lines 4 - 6 summarizes the federal payments to date and the balance remaining in the contract.

Line 7 is the Total State Operating Funds Eligible to date. This amount carries forward from page 1, cell I-30.

Line 8 carries forward from page 1 and is the total state rural operating funds received by the end of the quarter. Line 9 is the difference, the overpayment or underpayment is indicate but ONLY the overpayment is subtracted from the next payment the system receives. Underpayments are not adjusted until the final invoice payment is determined at the end

of the Calendar Year..

Lines 10 - 12 summarizes the state payments to date and the balance remaining in the contract.

Final Step: RECONCILIATION

Page 1, cells I-37; I-41and D-37 must match. If the amounts do not match, check all entries. If they still are not equal, call your ODOT representative for assistance.

THINGS TO CHECK:

* Are your contract amounts correct? Do they agree with your contract? * Have you included all YTD Federal and State eligible funds received through the Rural Transit Grant Program?

Accrual Class Exercise

The following is an exercise that was included in ODOT sponsored training on accrual accounting held during the fall of 2007. Since the grantee is now required to complete the ODOT quarterly invoice in accrual accounting, the exercise includes examples of transactions typical to many rural transit systems and follows the transactions through an entire quarter, from journal entry, to ledger (t-account), and basic income statements. The exercise shows both cash and accrual accounting methods to highlight the differences, and provides samples of how you might handle various transactions (though each systems transactions may be unique) and how the bottom line is impacted.

The exercise is divided as follows: Basic Accounting Notes (3 pages) Exercise Transactions (12 different areas) (2 pages) A Completed Worksheet (13 pages) T-Accounts in Cash (3 pages) T-Accounts in Accrual (3 pages) Side-by-Side Income Statement Showing Both Cash and Accrual Versions of Accounting (1 page)

This exercise is to be used as a general learning tool only. The situations of your system may vary from the samples shown.

Basic Accounting Notes: Page 1

Notes on Basic Accounting Standards Normal Balances FTA Number There are five different basic types of accounts. Debit Credit Range

Assets Things you own - Cash, Buses, Accounts Receivable, Etc. Debit 10000 Liabilities Things you owe - Accounts Payable, Loans, Etc. Credit 20000 Capital The Investment in the Business Plus/Mimus Prior Years Income/Loss Credit 30000 Revenues Money Earned - Fares, Contracts, Ad. Sales, Federal & State Support, Etc. Credit 40000 Expenses Cost of Doing Business - Wages, Fringes, Services, Supplies, Ins., Etc. Debit 50000

Accounting is a system of recording transactions in a financial form. Each transaction is "two sided" or "double entry", that is you will have a "debit" and a "credit" to two different accounts for each transaction.

For example in you own checkbook if you purchase groceries you are recording the fact that you purchased groceries ( a debit to supplies expense and that you reduced your cash on hand (a credit to cash). Another example would be on payday you receive $700, you are increasing your cash on hand (a debit to cash) and recording the fact that you earned revenue (a credit to revenue)

Chart of Accounts

A chart of accounts is a listing of accounts used by an organization (usually by number and description). In general business practices the numbering structure is such that assets begin with "1", liabilities begin with "2", capital begin with "3", revenues begin with "4", and expenses begin with "5 and above". For example wage expense might be 501-01-xx-xxx, cash might be 103-xx-xx-xxx, etc.

What Accounts Will I Use? In the business world there is no universal "chart of accounts" that eveyone uses. As each business and organization is unique, so is their chart of accounts. You will find consistency among different industies and regions, this will also hold true in the public transit field.

FTA The Federal Transit Administration has developed a "Uniform System of Accounts" (USOA) for use by FTA funded transit agencies. This chart of accounts includes basic account number as well as descriptions of what items should be posted to each of these accounts. The USOA can be downloaded at http://www.ntdprogram.gov/ntdprogram/pubs/reference/USOA.pdf

ODOT The Ohio Department of Transportation has created a version of the USOA for use by Ohio's Rural Transit Systems. This scaled down version of the FTA USOA highlights the accounts, numbers, and descriptions which your system should use. This can be found in the Rural Transit Manual, Attachment 5-A.

Samples of both are available here today for review, we recommend that you download and print copies of each for future reference.

Basic Accounting Notes: Page 2

Cash Accounting Example: You pay $1,500 for a vehicle repair made on March 15th and paid on April 10th. to J&H Repair Shop Sample Checkbook (Debit) (Credit) Funds Funds Date Transaction Deposited Withdrawn Balance 4/10/2008 Vehicle Repair - J&H Repair Shop 1,500.00

In this example your cash is reduced (credited) and why you may see it directly, you have recorded an "repair expense" for $1,500. At quarter end you would summerize all the transactions from your checkbook and create a financial statement and transfer that data to the ODOT invoice.

The flaw with this is that the repair was actually made in March (the previous quarter) and should have been recorded then to more accurately reflect the true timing of expenses.

Accrual Accounting Example: You pay $1,500 for a vehicle repair made on March 15th and paid on April 10th. to J&H Repair Shop Under accrual accounting you use a series of "holding accounts" to allow for recording an item in a period before actual cash changes hand. When accounting with pencil & paper (by hand) you will keep track of these items by writing journal entries and posting to "T" accounts (so named because they look like the letter T.

Journal Entries Date Description Debit Credit 3/15/2008 Contract Maintenance Services 1,500.00 Accounts Payable 1,500.00

4/10/2008 Accounts Payable 1,500.00 Cash 1,500.00

March Cash Accounts Payable Service Expense 1500 1500

Show no Cash Changed Hands Shows You Owe Someone Shows a March Expense

April Cash Accounts Payable Service Expense 1500 1500

Shows You Reduced Cash Shows You Paid You Owed Show No Expense in April

Basic Accounting Notes: Page 3 Summary of "T" Account Information

Assets Sample Items:

Increase Decrease Cash, Checking Account, Savings Account, Accounts Reveivable, Inventory, Buses, (Debit) (Credit) Facility, Investments, Etc.

Normal Bal.

Liabilities

Decrease Increase Accounts Payable, Wages Payable, Taxes Payable, Unearned Assistance, Debt, Etc. (Debit) (Credit)

Normal Bal.

Capital

Decrease Increase Capital Stock Investment (Debit) (Credit)

Normal Bal.

Revenue

Decrease Increase Cash Fares, Contract Revenue, Advertising Revenue, Donations, Local Property/Sales (Debit) (Credit) Tax Revenue, State and Federal Operating Revenue, Contibuted Services, Etc.

Normal Bal.

Expenses

Increase Decrease Wages, Fringes, Services, Materials & Supplies, Utilities, Casualty (Insurance), Taxes, (Debit) (Credit) Misc. Exp., Interest, Depreciation, Etc.

Normal Bal. 61

Exercise Transactions: Page 1

Accrual Accounting Exercise Facts at a Glance:

WNMM Transit They are a new start-up and began operations 1-1-07 with $80,000 in the bank. 911 I Don’t Get It Lane Service is operated Monday-Friday only. Accrual, Ohio 90210 WNMM Transit is a small system which operates one fixed route (contracted out) and door to door service (operated in-house). ODOT tranfers used buses to them from another system. They receive a grant for 50% federal funding after fares (up to $180,000) and state funding (up to $90,000) Transactions:

1 a ODOT sends monthly check for 1/12 of State Operating Funds - checks are for $7,500 and received the 10th of each month. b ODOT sends monthly check for 1/12 of Federal Operating Funds - checks are for $15,000 and received the 10th of each month.

2 Payroll Information as follows: Agency Director Annual Salary of $26,000 Reservationist / Dispatcher Earns $250 per week 6 Full-time Drivers Each is paid $300 per week

Start Date End Date Pay Date

a Jan 1 is Holiday pay for all 1/1/2007 1/14/2007 1/19/2007 b 1/15/2007 1/28/2007 2/2/2007 c 1/29/2007 2/11/2007 2/16/2007 d Director is on Vacation 1 week 2/12/2007 2/25/2007 3/2/2007 e 2/26/2007 3/11/2007 3/16/2007 f 3/12/2007 3/25/2007 3/30/2007 g 3/26/2007 4/8/2007 4/13/2007

3 a Medical Insurance bill for $30,000 covering Jan - June is paid on 1-15

4 Service Contractor invoices as follows: Service Fares Held Net Due Date Paid a January 2007 7,700.00 560.00 7,140.00 3/2/2007 b February 2007 7,000.00 720.00 6,280.00 3/23/2007 c March 2007 7,700.00 930.00 6,770.00 4/26/2007

5 a On April 15 you pay your annual (fy 2007) vehicle insurance bill of $48,000

6 a On 2-3-07 you are billed for repairs made on a bus on January 29th, labor is $1,200 and parts are $400, you pay it on 2-9, total $1,600.

Exercise Transactions: Page 2

7 a On 2-12 you pay your attorney invoice of $400 for work done in January. b He bills you $625 for February service on 3-16 and you pay it on 4-2. c During March he does $125 worth of work but does not bill you until late April.

8 Fuel is purchased through the county and they bill WNMM. The county bills for fuel as follows: Month Bill Date Fuel Tax Total Paid a January 2/16/2007 3,000.00 150.00 3,150.00 3/9/2007 b February 3/16/2007 2,800.00 140.00 2,940.00 3/30/2007 c March 4/13/2007 3,200.00 160.00 3,360.00 4/20/2007 d (The State refunds 90% of the taxes paid on April 30th)

9 The following misc. invoices are processed: Amount Bill Date Pay Date a Newspaper ads which ran on January 20th 900.00 2/2/2007 2/23/2007 b Paid OPTA dues for 2007 240.00 1/15/2007 2/2/2007

10 Fare Revenue Cash Billed Date Paid a January 310.00 1,100.00 3/2/2007 b February 490.00 1,430.00 3/23/2007 c March 635.00 1,890.00 4/20/2007 (assume cash is deposited the same day)

11 a The county provides furnished offices and vehicle storage with a documented value of $2,000 per month at no cost to WNMM. b WNMM is billed $500 a month for shared utiltity and phone service. They pay the county the following month on the 10th. Note: WNMM Transit has an approved "In-Kind" plan with ODOT

12 a You sign a contract to sell bus advetising for $750 a month for the year. You receive the first check for $2,250 on April 15th. b You agree to provide contracted transit service to an approved agency @ $6,000 a month. They pay you on March 1st. For service you provided in January and on Apirl 3rd for service you provided in February and on April 12th for the March Service.

Completed Worksheet: Page 1

1 a ODOT sends monthly check for 1/12 of State Operating Funds - checks are for $7,500 and received the 10th of each month. ODOT sends monthly check for 1/12 of Federal Operating Funds - checks are for $15,000 and received the 10th of each month.

C January February March A Accounts Debit Credit Debit Credit Debit Credit S H 1a 1/10/07 Cash 22,500.00 State Operating Revenue 7,500.00 Federal Operating Revenue 15,000.00

1a 2/10/07 Cash 22,500.00 State Operating Revenue 7,500.00 Federal Operating Revenue 15,000.00

1a 3/10/07 Cash 22,500.00 State Operating Revenue 7,500.00 Federal Operating Revenue 15,000.00

A January February March C Accounts Debit Credit Debit Credit Debit Credit C R 1a 1/10/07 Cash 22,500.00 U Unearned Funds 7,500.00 A Unearned Funds 15,000.00 L 1a 2/10/07 Cash 22,500.00 Unearned Funds 7,500.00 Unearned Funds 15,000.00

1a 3/10/07 Cash 22,500.00 Unearned Funds 7,500.00 Unearned Funds 15,000.00

The Calculations for Actual Federal and State Operating Assistance are Done Later in this Exercise - At that time we will transfer from the Unearned Funds Account to a Revenue Account Based on the Actual Funds Used.

Completed Worksheet: Page 2

2 Payroll Information as follows: Agency Director Annual Salary of $26,000 Reservationist / Dispatcher Earns $250 per week 6 Full-time Drivers Each is paid $300 per week

Start Date End Date Pay Date a Jan 1 is Holiday pay for all 1/1/2007 1/14/2007 1/19/2007 b 1/15/2007 1/28/2007 2/2/2007 c 1/29/2007 2/11/2007 2/16/2007 d Director is on Vacation 1 week 2/12/2007 2/25/2007 3/2/2007 e 2/26/2007 3/11/2007 3/16/2007 f 3/12/2007 3/25/2007 3/30/2007 g 3/26/2007 4/8/2007 4/13/2007

They are paid bi-weekly or 26 times per year. So lets calculate each weekly payroll (assume no overtime).

Director 26,000 / 26 pays = $1000 1,000.00 Reservationist / Dispatched 250 * 2 Weeks = $500 500.00 Drivers 300 * 2 Weeks = 600 * 6 Drivers = $3600 3,600.00 5,100.00 (or $510 per day) Remember, service is operated M-F only.

C January February March A Accounts Debit Credit Debit Credit Debit Credit S H 2a 1/19/07 Wage Expense 4,590.00 Fringe Expense 510.00 Cash 5,100.00

2b 2/2/07 Wage Expense 5,100.00 Cash 5,100.00

2c 2/16/07 Wage Expense 5,100.00 Cash 5,100.00

2d 3/2/07 Wage Expense 4,600.00 Fringe Expense 500.00 Cash 5,100.00

2e 3/16/07 Wage Expense 5,100.00 Cash 5,100.00

2f 3/30/07 Wage Expense 5,100.00 Cash 5,100.00

2g No Entry

Completed Worksheet: Page 3

A January February March C Accounts Debit Credit Debit Credit Debit Credit C R 2a 1/14/07 Wage Expense 4,590.00 U Fringe Expense 510.00 A Wages Payable 5,100.00 L 1/19/07 Wages Payable 5,100.00 Cash 5,100.00

2b 1/28/07 Wage Expense 5,100.00 Wages Payable 5,100.00 2/2/07 Wages Payable 5,100.00 Cash 5,100.00

2c 1/31/07 Wage Expense 1,530.00 Wages Payable 1,530.00 2/11/07 Wage Expense 3,570.00 Wages Payable 3,570.00 2/16/07 Wages Payable 5,100.00 Cash 5,100.00

2d 2/25/07 Wage Expense 4,600.00 Fringe Expense 500.00 Wages Payable 5,100.00 3/2/07 Wages Payable 5,100.00 Cash 5,100.00

2e 2/28/07 Wage Expense 1,530.00 Wages Payable 1,530.00 3/11/07 Wage Expense 3,570.00 Wages Payable 3,570.00 3/16/07 Wages Payable 5,100.00 Cash 5,100.00

2f 3/25/07 Wage Expense 5,100.00 Wages Payable 5,100.00 3/30/07 Wages Payable 5,100.00 Cash 5,100.00

2g 3/30/07 Wage Expense 2,550.00 Wages Payable 2,550.00

Completed Worksheet: Page 4

3 Medical Insurance bill for $30,000 covering Jan - June is paid on 1-15

30,000 / 6 Months = $5,000 per month

C January February March A Accounts Debit Credit Debit Credit Debit Credit S H 3a 1/15/07 Fringe Expense 30,000.00 Cash 30,000.00

A January February March C Accounts Debit Credit Debit Credit Debit Credit C R 3a 1/1/07 Fringe Expense 5,000.00 U Accounts Payable 5,000.00 A L 3a 1/15/07 Accounts Payable 5,000.00 Prepaid Insurance 25,000.00 Cash 30,000.00

3a 2/1/07 Fringe Expense 5,000.00 Prepaid Insurance 5,000.00

3a 3/1/07 Fringe Expense 5,000.00 Prepaid Insurance 5,000.00

Completed Worksheet: Page 5

C January February March A Accounts Debit Credit Debit Credit Debit Credit S H 4a 3/2/07 Purchased Trans Expense 7,700.00 Fare Revenue 560.00 Cash 7,140.00

4b 3/23/07 Purchased Trans Expense 7,000.00 Fare Revenue 720.00 Cash 6,280.00

4c No Entry

A January February March C Accounts Debit Credit Debit Credit Debit Credit C R 4a 1/31/07 Purchased Trans Expense 7,700.00 U Fare Revenue 560.00 A Accounts Payable 7,140.00 L 3/2/07 Accounts Payable 7,140.00 Cash 7,140.00

4b 2/28/07 Purchased Trans Expense 7,000.00 Fare Revenue 720.00 Accounts Payable 6,280.00 3/23/07 Accounts Payable 6,280.00 Cash 6,280.00

4c 3/31/07 Purchased Trans Expense 7,700.00 Fare Revenue 930.00 Accounts Payable 6,770.00

Completed Worksheet: Page 6

5 On April 15 you pay your annual (fy 2007) vehicle insurance bill of $48,000

48,000 / 12 Months = $4,000 per month

C January February March A Accounts Debit Credit Debit Credit Debit Credit S H 5a No Entry

A January February March C Accounts Debit Credit Debit Credit Debit Credit C R 5a 1/1/07 Insurance Expense 4,000.00 U Accounts Payable 4,000.00 A L 5a 2/1/07 Insurance Expense 4,000.00 Accounts Payable 4,000.00

5a 3/1/07 Insurance Expense 4,000.00 Accounts Payable 4,000.00

Completed Worksheet: Page 7

6 On 2-3-07 you are billed for repairs made on a bus January 29th, labor is $1,200 and parts are $400, you pay it on 2-9, total $1,600.

C January February March A Accounts Debit Credit Debit Credit Debit Credit S H 6a 2/9/07 Service Expense 1,200.00 M&S Expense 400.00 Cash 1,600.00

A January February March C Accounts Debit Credit Debit Credit Debit Credit C R 6a 1/29/07 Service Expense 1,200.00 U M&S Expense 400.00 A Accounts Payable 1,600.00 L 2/9/07 Accounts Payable 1,600.00 Cash 1,600.00

Completed Worksheet: Page 8

C January February March A Accounts Debit Credit Debit Credit Debit Credit S H 7a 2/12/07 Service Expense 400.00 Cash 400.00

7b No Entry

7c No Entry

A January February March C Accounts Debit Credit Debit Credit Debit Credit C R 7a 1/31/07 Service Expense 400.00 U Accounts Payable 400.00 A 2/12/07 Accounts Payable 400.00 L Cash 400.00

7b 2/28/07 Service Expense 625.00 Accounts Payable 625.00

7c 3/31/07 Service Expense 125.00 Accounts Payable 125.00

Completed Worksheet: Page 9

8 Fuel is purchased through the county and they bill WNMM. (The State refunds 90% of the taxes paid on April 30th) The county bills for fuel as follows: Month Bill Date Fuel Tax Total Paid a January 2/16/2007 3,000.00 150.00 3,150.00 3/9/2007 b February 3/16/2007 2,800.00 140.00 2,940.00 3/30/2007 c March 4/13/2007 3,200.00 160.00 3,360.00 4/20/2007

C January February March A Accounts Debit Credit Debit Credit Debit Credit S H 8a 3/9/07 Fuel Expense 3,000.00 Tax Expense 150.00 Cash 3,150.00

8b 3/30/07 Fuel Expense 2,800.00 Tax Expense 140.00 Cash 2,940.00

8c No Entry

A January February March C Accounts Debit Credit Debit Credit Debit Credit C R 8a 1/31/07 Fuel Expense 3,000.00 U Tax Expense 150.00 A Accounts Payable 3,150.00 L Accounts Receivable 135.00 Tax Expense 135.00 3/9/07 Accounts Payable 3,150.00 Cash 3,150.00

8b 2/28/07 Fuel Expense 2,800.00 Tax Expense 140.00 Accounts Payable 2,940.00 Accounts Receivable 126.00 Tax Expense 126.00 3/30/07 Accounts Payable 2,940.00 Cash 2,940.00

8c 3/31/07 Fuel Expense 3,200.00 Tax Expense 160.00 Accounts Payable 3,360.00 Accounts Receivable 144.00 Tax Expense 144.00

Completed Worksheet: Page 10

9 The following misc. invoices are processed: Amount Bill Date Pay Date a Newspaper ads which ran on January 20th 900.00 2/2/2007 2/23/2007 b Paid OPTA dues for 2007 240.00 1/15/2007 2/2/2007

C January February March A Accounts Debit Credit Debit Credit Debit Credit S H 9a 2/23/07 Misc. Expense 900.00 Cash 900.00

9b 2/2/07 Misc. Expense 240.00 Cash 240.00

A January February March C Accounts Debit Credit Debit Credit Debit Credit C R 9a 1/20/07 Misc. Expense 900.00 U Accounts Payable 900.00 A 2/23/07 Accounts Payable 900.00 L Cash 900.00

9b 1/15/07 Misc. Expense 20.00 Prepaid Expense 220.00 Accounts Payable 240.00 2/2/07 Accounts Payalbe 240.00 Cash 240.00 2/15/07 Misc. Expense 20.00 Prepaid Expense 20.00 3/15/07 Misc. Expense 20.00 Prepaid Expense 20.00

9b Alternate

1/15/07 Misc. Expense 240.00 Accounts Payable 240.00 2/2/07 Accounts Payable 240.00 Cash 240.00

The amount is so small that it will not have a material effect on your monthly numbers so you could book all the expense in January.

Completed Worksheet: Page 11

10 Fare Revenue Cash Billed Date Paid a January 310.00 1,100.00 3/2/2007 b February 490.00 1,430.00 3/23/2007 c March 635.00 1,890.00 4/20/2007 (assume cash is deposited the same month)

C January February March A Accounts Debit Credit Debit Credit Debit Credit S H 10a 1/31/07 Cash 310.00 Fare Revenue 310.00 3/2/07 Cash 1,100.00 Fare Revenue 1,100.00

10b 2/28/07 Cash 490.00 Fare Revenue 490.00 3/23/07 Cash 1,430.00 Fare Revenue 1,430.00

10c 3/31/07 Cash 635.00 Fare Revenue 635.00

A January February March C Accounts Debit Credit Debit Credit Debit Credit C R 10a 1/31/07 Cash 310.00 U Accounts Receivable 1,100.00 A Fare Revenue 1,410.00 L 3/2/07 Cash 1,100.00 Accounts Receivable 1,100.00

10b 2/28/07 Cash 490.00 Accounts Receivable 1,430.00 Fare Revenue 1,920.00 3/23/07 Cash 1,430.00 Accounts Receivable 1,430.00

10c 3/31/07 Cash 635.00 Accounts Receivable 1,890.00 Fare Revenue 2,525.00

Completed Worksheet: Page 12

C January February March A Accounts Debit Credit Debit Credit Debit Credit S H 11a No Entry

11b 2/10/07 Utility Expense 500.00 Cash 500.00 3/10/07 Utility Expense 500.00 Cash 500.00

A January February March C Accounts Debit Credit Debit Credit Debit Credit C R 11a 1/31/07 Lease Expense 2,000.00 U Non Cash Support Revenue 2,000.00 A 2/28/07 Lease Expense 2,000.00 L Non Cash Support Revenue 2,000.00 3/31/07 Lease Expense 2,000.00 Non Cash Support Revenue 2,000.00

11b 1/31/07 Utility Expense 500.00 Accounts Payable 500.00 2/10/07 Accounts Payable 500.00 Cash 500.00 2/28/07 Utility Expense 500.00 Accounts Payable 500.00 3/10/07 Accounts Payable 500.00 Cash 500.00 3/31/07 Utility Expense 500.00 Accounts Payable 500.00

Completed Worksheet: Page 13

C January February March A Accounts Debit Credit Debit Credit Debit Credit S H 12a No Entry

12b 3/1/07 Contract Revenue 6,000.00 Cash 6,000.00

A January February March C Accounts Debit Credit Debit Credit Debit Credit C R 12a 1/31/07 Advertising Revenue 750.00 U Accounts Receivable 750.00 A L 2/28/07 Advertising Revenue 750.00 Accounts Receivable 750.00

3/31/07 Advertising Revenue 750.00 Accounts Receivable 750.00

12b 1/31/07 Contract Revenue 6,000.00 Accounts Receivable 6,000.00

1/31/07 Contract Revenue 6,000.00 Accounts Receivable 6,000.00

3/1/07 Cash 6,000.00 Accounts Receivable 6,000.00

3/31/07 Contract Revenue 6,000.00 Accounts Receivable 6,000.00

T-Accounts in Cash: Page 1

Cash Summary Sheet Ending Balance January February March or Totals Balance Sheet Debit Credit ID # Debit Credit ID # Debit Credit ID #

Cash 80,000 BF 67,400 BF 76,550 BF 22,500 1a 22,500 1a 22,500 1a 5,100 2a 5,100 2b 5,100 2d 30,000 3a 5,100 2c 5,100 2e 1,600 6a 5,100 2f 400 7a 7,140 4a 900 9a 6,280 4b 240 9b 3,150 8a 490 10b 2,940 8b 500 11b 1,100 10a 1,430 10b 635 10c 500 11b 6,000 12b 67,400 76,550 72,905 72,905

T-Accounts in Cash: Page 2

Cash Summary Sheet Ending Balance January February March or Totals

Expenses Debit Credit ID # Debit Credit ID # Debit Credit ID #

Wages 4,590 2a 5,100 2b 4,600 2d 5,100 2c 5,100 2e 5,100 2f 4,590 10,200 14,800 29,590

Fringes 510 2a 500 2d 30,000 3a 30,510 - 500 31,010

Services 1,200 6a 400 7a - 1,600 - 1,600

M&S 400 6a 3,000 8a 2,800 8b - 400 5,800 6,200

Utilities 500 11b 500 11b

- 500 500 1,000

Insurance

- - - -

Taxes 150 8a 140 8b - - 290 290

Pur. Trans 7,700 4a 7,000 4b - - 14,700 14,700

Misc. 900 9a 240 9b - 1,140 - 1,140

Lease

- - - -

Total Exp. 35,100 13,840 36,590 85,530

T-Accounts in Cash: Page 3

Cash Summary Sheet Ending Balance January February March or Totals

Revenues Debit Credit ID # Debit Credit ID # Debit Credit ID #

Fares 310 10a 490 10b 560 4a 720 4b 1,100 10a 1,430 10b 635 10c 310 490 4,445 5,245

Contract 6,000 12a

- - 6,000 6,000

Advertisting

- - - -

Federal 15,000 1a 15,000 1a 15,000 1a 4,858 * 15,000 15,000 10,142 40,142

State 7,500 1a 7,500 1a 7,500 1a

7,500 7,500 7,500 22,500

Total Revenues 22,810 22,990 28,087 73,887

Actual Calculation of Operating Assistance

Federal Expenses 35,100 13,840 36,590 less Fares (310) (490) (4,445) Net Exp 34,790 13,350 32,145 x Rate 50% 50% 50% Fed. Asst. 17,395 6,675 16,072 40,142

State Non - Fed 17,395 6,675 16,074 less Local - - (6,000) Net Exp 17,395 6,675 10,074 34,144 Mth. Max. 7,500 7,500 7,500 22,500 State Asst. 7,500 7,500 7,500

Operating Recap Local Revenues 22,810 22,990 28,087 Share less Expenses (35,100) (13,840) (36,590) Gain (loss) (12,290) 9,150 (8,503) (11,643)

* Entry to Record the Return of overpayment in first quarter federal funds (ODOT w ill actually deduct from the next payment)

T-Accounts in Accrual: Page 1

Accrual Summary Sheet Ending Balance January February March or Totals Balance Sheet Debit Credit ID # Debit Credit ID # Debit Credit ID #

Acc. Rec. - BF 7,985 BF 16,291 BF 135 8a 126 8b 144 8c 1,100 10a 1,430 10b 1,100 10a 750 12a 750 12a 1,430 10b 6,000 12b 6,000 12b 1,890 10c 750 12a 6,000 12b 6,000 12b 7,985 16,291 16,545 16,545

Prepaid - BF 25,220 BF 20,200 BF 25,000 3a 5,000 3a 5,000 3a 220 9b 20 9b 20 9b 25,220 20,200 15,180 15,180

Wages Payable - BF 6,630 BF 6,630 BF 5,100 2a 5,100 2b 5,100 2d 5,100 2a 3,570 2c 3,570 2e 5,100 2b 5,100 2c 5,100 2e 1,530 2c 5,100 2d 5,100 2f 1,530 2e 5,100 2f 2,550 2g 6,630 6,630 2,550 15,810

Acc. Payable BF 17,930 BF 28,635 BF 5,000 3a 6,280 4b 7,140 4a 5,000 3a 4,000 5a 6,280 4b 7,140 4a 1,600 6a 6,770 4c 4,000 5a 400 7a 4,000 5a 1,600 6a 625 7b 125 7c 400 7a 2,940 8b 3,150 8a 3,150 8a 900 9a 2,940 8b 900 9a 240 9b 3,360 8c 240 9b 500 11b 500 11b 500 11b 500 11b 500 11b 17,930 28,635 23,380 69,945

Unearned BF 22,500 BF 45,000 BF 7,500 1a 7,500 1a 7,500 1a 15,000 1a 15,000 1b 15,000 1b

22,500 45,000 67,500 80

T-Accounts in Accrual: Page 2

Accrual Summary Sheet Ending Balance January February March or Totals

Expenses Debit Credit ID # Debit Credit ID # Debit Credit ID #

Wages 4,590 2a 3,570 2c 3,570 2e 5,100 2b 4,600 2d 5,100 2f 1,530 2c 1,530 2e 2,550 2g 11,220 9,700 11,220 32,140

Fringes 510 2a 500 2d 5,000 3a 5,000 3a 5,000 3a 5,510 5,500 5,000 16,010

Services 1,200 6a 625 7b 125 7c 400 7a 1,600 625 125 2,350

M&S 400 6a 2,800 8b 3,200 8c 3,000 8a 3,400 2,800 3,200 9,400

Utilities 500 11b 500 11b 500 11b

500 500 500 1,500

Insurance 4,000 5a 4,000 5a 4,000 5a

4,000 4,000 4,000 12,000

Taxes 150 135 8a 140 126 8b 160 144 8c

15 14 16 45

Pur. Trans 7,700 4a 7,000 4b 7,700 4c

7,700 7,000 7,700 22,400

Misc. 900 9a 20 9b 20 9b 20 9b 920 20 20 960

Lease 2,000 11a 2,000 11a 2,000 11a

2,000 2,000 2,000 6,000

Total Exp. 36,865 32,159 33,781 102,805

T-Accounts in Accrual: Page 3

Accrual Summary Sheet Ending Balance January February March or Totals

Revenues Debit Credit ID # Debit Credit ID # Debit Credit ID #

Fares 560 4a 720 4b 930 4c 1,410 10a 1,920 10b 2,525 10c 1,970 2,640 3,455 8,065

Contracts 6,000 12b 6,000 12b 6,000 12b

6,000 6,000 6,000 18,000

Advertising 750 12a 750 12a 750 12a

750 750 750 2,250

Local 2,000 11a 2,000 11a 2,000 11a

2,000 2,000 2,000 6,000

Federal 17,448 14,760 15,163

17,448 14,760 15,163 47,370

State 7,500 7,500 7,500 1,380 * 7,500 7,500 6,120 21,120

Total Revenues 35,668 33,650 33,488 102,805

Actual Calculation of Operating Assistance

Federal Expenses 36,865 32,159 33,781 less Fares (1,970) (2,640) (3,455) Net Exp 34,895 29,519 30,326 x Rate 50% 50% 50% Fed. Asst. 17,448 14,760 15,163 47,370

State Non - Fed 17,448 14,760 15,163 less Local (8,750) (8,750) (8,750) Net Exp 8,698 6,010 6,413 21,120 Mth. Max. 7,500 7,500 7,500 22,500 State Asst. 7,500 7,500 7,500

Operating Recap Local Revenues 35,668 33,650 33,488 Share less Expenses (36,865) (32,159) (33,781) Gain (loss) (1,198) 1,491 (293) -

* Entry to reflect the overbooking of State funds, ODOT w ill deduct from the next payment. 82

Side-by-Side Income Statements Showing Both Cash and Accrual Accounting Reporting

Quarterly Summary Cash Accrual Accounting Accounting

Transportation Revenues

401 Passenger Fares 5,245.00 8,065.00 402 Special Transit Fares 6,000.00 18,000.00

Total Transportation Revenues 11,245.00 26,065.00

Non-Transportation Revenues

406 Advertising Revenue - 2,250.00 411 State Assistance 22,500.00 21,120.00 413 Federal Assistance 40,142.00 47,370.00 430 Contributed Services - 6,000.00

Total Non-Transportation Revenues 62,642.00 76,740.00

Operating Expenses

501 Labor 29,590.00 32,140.00 502 Fringes 31,010.00 16,010.00 503 Services 1,600.00 2,350.00 504 Materials & Supplies 6,200.00 9,400.00 505 Utilities 1,000.00 1,500.00 506 Casualty & Liability - 12,000.00 507 Taxes 290.00 45.00 508 Purchased Transportation 14,700.00 22,400.00 509 Miscellaneous 1,140.00 960.00 511 Interest - - 512 Leases & Rentals - 6,000.00 513 Depreciation - - 600 Other Costs - -

Total Operating Expenses 85,530.00 102,805.00

Income / Loss (11,643.00) -