BRIEF

Policy Summary

This policy describes the requirements for accounting for prepayments and advance payments to others ("advances") at Lawrence Berkeley National Laboratory (Berkeley Lab) to ensure adherence to Department of Energy (DOE) asset accounting requirements.

Who Should Read This Policy

This policy applies to all employees who establish, monitor, or report on prepayments or advances.

To Read the Full Policy, Go To:

The POLICY tab on this wiki page

Contact Information

General Accounting Manager

POLICY

A. Purpose

This policy describes the requirements for accounting for prepayments and advance payments to others ("advances") at Lawrence Berkeley National Laboratory (Berkeley Lab) to ensure adherence to DOE asset accounting requirements.

B. Persons Affected

This policy applies to all employees who establish, monitor, or report on prepayments or advances.

C. Exceptions

This policy does not apply to property, plant, and equipment subject to capitalization and depreciation requirements or inventory. See the Property, Plant, and Equipment (PP&E) and Internal Use Software (IUS) and Inventory policies for additional information on these asset types.

D. Policy Statement

1. General
Berkeley Lab accounts for prepayments and advances to others as balance sheet assets, in compliance with the DOE Financial Management Accounting Handbook, Chapter 7.For the purposes of this policy, a "prepayment" is a payment made in one accounting/fiscal period for a service with a benefit that extends over future accounting/fiscal periods. An example of a prepayment is the purchase of an 18-month service agreement. In the month the service agreement is paid for, it is booked as a prepayment asset on the Laboratory's financial statements. The cost of the service agreement is then amortized over the period of the agreement. Other examples of transaction categories that may result in prepayments include:

• Maintenance agreements
• Warranties
• Licenses
• Subscriptions

For the purposes of this policy, an "advance" is a required deposit placed with a third-party entity as a condition of doing business with that entity. An example of an advance is the deposit required by the U.S. Patent Office and Trademark Office (USPTO). The USPTO advance eliminates the need to send payment by check, credit card, or other payment type each time a fee is required. An advance can also be a payment in advance with a third party in anticipation of receiving goods and services. Before a prepayment or advance is accounted for as an asset on the Laboratory's balance sheet, Procurement standard practices must be followed to ensure that procurement advance payment requirements are met (SP 32.1, Subcontract Financing, Payments).

The materiality threshold for prepayments requires two criteria to be met:

• Benefit of costs incurred will extend beyond 12 months and
• Benefit of costs incurred per fiscal year will be equal to or exceeding $25,000.

Both of the above criteria must be met for a prepayment to be booked as an asset. This policy does not apply to subcontracts with a contract period of one year or less. This policy also does not apply if warranty coverage is included in the purchase price of equipment. In this case, the Property, Plant, and Equipment (PP&E) and Internal Use Software (IUS) policy applies.

2. Establishment of Advance Payment to Others on the Balance Sheet
Expenses related to advance payments will be evaluated individually by General Accounting to determine the appropriate accounting treatment.

3. Establishment of Prepayments and Advance Payment on the Balance Sheet
The DOE requires that prepayments must be funded from an appropriate Budget and Reporting (B&R) code. That is, all direct funded prepayments must be associated with budget authority from a direct funded B&R code, and all indirect funded prepayments must be associated with the B&R YN01.

4. Recognizing Expenses Related to Prepayments
Through the amortization process, the cost related to a prepayment is spread over the accounting/fiscal periods for which a benefit is received. General Accounting books amortization expense on a monthly basis.

E. Roles and Responsibilities

Managers, supervisors, and employees have the responsibility to adhere to the provisions of this policy.

F. Definitions/Acronyms

G. Recordkeeping Requirements

None

H. Implementing Documents

SP 32.1 Payments

Prepayment Flow Chart

I. Contact Information

General Accounting Manager

J. Revision History

DOCUMENT INFORMATION

Source Requirements Documents

• DOE Financial Management Handbook Chapter 7