Home / White Papers / DRAFT – Understanding Subsidiary Ledger Budgets versus General Ledger Fund Balance

DRAFT – Understanding Subsidiary Ledger Budgets versus General Ledger Fund Balance

Print

NOTE:
November 2024: This FAMIS white paper was written in 1991 yet remains relevant today.  It has been edited and updated but is by and large presented in its original form.

In FAMIS, budget authority is given to cost centers by budget entries in the subsidiary ledger (SL) accounts. These budget entries do not affect fund balance, cash or anything else in the general ledger (GL) balance sheet accounts. Note, however, that the budget amounts from SL accounts are recorded in the GL summary account controls.

Technically, budget authorization can be created without a supporting basis. This is not desirable, so the question remains: how can the GLs and the SLs be managed so that budget authority is given only when funds are available or expected? The answer is in enforcing, on a procedural basis, the following formula for every GL that has SLs:

+ Fund balance
=
+ Expense budget balance available (Expense BBA)
+ Encumbrances
+ Revenue budget balance available (Revenue BBA)

Note that encumbrances are added back to the Expense BBA because they have not been deducted from the fund balance.

What the formula says is essentially that the Expense BBA in the SL should be “covered” by (1) the fund balance in the corresponding GL or (2) a corresponding revenue budget (i.e., estimated income). As expenditures are incurred or as revenue is received, both sides of the equation will be impacted equally. If the equation is out of balance, there are two possible explanations:

  1. The budget has been inappropriately allocated to an SL account, or
  2. The difference is intentional, and the amount represents unallocated fund balance (i.e., unbudgeted fund balance reserve).

Therefore, it is more correct to represent the above equation as:

+ Fund Balance
– Fund Balance to be held in reserve
=
+ Expense BBA
+ Encumbrances
+ Revenue BBA

By management decision, the reserve balance for some GL accounts may be kept at zero (0), in which case, any unobligated reserves can be held as fund balance in a separate standalone GL or as Expense BBA in another SL. However, keeping reserve balances in a GL account with or without SL accounts is perfectly acceptable. Keeping reserve balances as budget balances in SL accounts is possible, but with no intent to spend.

The best ways to manage the reserve balance in GL accounts are:

  1. For a cost-reimbursable grant, set up the entire expense budget for the grant amount.  Then, set up a revenue budget for the same amount as the expense budget.
  2. For a restricted account on a cash basis (i.e., allow expenses only to the extent revenue has been received; often done with gift accounts), do NOT set up a budget for the account, but set the generated expense budget (GEB) flag to Y. The budget generator program will adjust both the revenue and expense budgets, thus keeping the reserve amount constant.
  3. If budget authority for an SL account is transferred from another SL account, the corresponding cash from the first GL account must be transferred into the new GL. This is routinely done by doing budget transfers with the cash transfer field set to Y. Note that if both SLs are mapped to the same GL, no cash transfer will be done.
  4. If the budget authority for an SL account must come from the fund balance in another GL, the cash should be transferred into the mapped GL for the SL receiving the budget authority. For this, two things are needed:
    • A journal entry with a fund addition account control (thus increasing the fund balance) for the new GL and
    • A fund deduction account control with the old GL. 

The expense budget can then be entered in the SL as the original or revised budget.

FAMIS Classic Report: FBAR530

In 1991, FAMIS Report FBAR530 was developed to provide insight into GL balances, SL budgets and fund balances held in reserve. This report is a management tool that produces a year-to-date report comparing GL fund balances to SL budget balances. The report prints one line per GL showing the fund balance and the summary of the SL encumbrance, expense and revenue figures. The final column shows the unbudgeted fund balance reserve.

FBAR530 can be run with Option2 set to Y. This version prints each SL’s balances within the GL, identifying the portion of the GL fund balance contained in each SL.

BusinessObjects Universe: FAMIS GL/SL Balances

A BusinessObjects universe was developed to provide the same functionality as the report FBAR530. The universe has additional features and capabilities and is highly recommended. Fund balances can be analyzed using multiple combinations of attributes.

FAMIS Screen 702

The reserve balance can also be observed on FAMIS Screen 702 (GL 6 Digit Reserve Balance).