Louisiana Administrative Code
Title 28 - EDUCATION
Part XLI - Bulletin 1929-Louisiana Accounting and Uniform Governmental Handbook
Chapter 6 - Measurement Focus and Basis of Accounting
Section XLI-607 - Expenses

Universal Citation: LA Admin Code XLI-607

Current through Register Vol. 50, No. 9, September 20, 2024

A. Expenses are defined as the outflows or expiration of assets or the incurrence of liabilities during a period, from providing or producing goods, rendering services, or carrying out other activities that constitute the entity's primary operations.

B. Proprietary funds recognize expenses using the accrual basis of accounting (i.e., when the related liability is incurred), without regard for the timing of the payment. This recognition criterion is consistent with the following guidelines discussed in Financial Accounting Standard Board (FASB) Statement No. 5. Although FASB Statements do not represent authoritative guidance for governments, the discussion is useful in classifying expense transactions within proprietary funds.

1. Associating cause and effect. Some expenses (such as the cost of goods sold) are recognized on recognition of revenues that result directly and jointly from the same transactions or other events as the expenses.

2. Systematic and rational allocation. Some expenses (such as depreciation and insurance) are allocated by systematic and rational procedures to the periods during which the related assets are expected to provide benefits.

3. Immediate Recognition. Many expenses (such as selling and administrative salaries) are recognized during the period in which cash is spent or liabilities are incurred for goods or services that are used up either simultaneously with acquisition or soon after.

C. As examples, the major types of governmental expenditures are accounted for differently in proprietary fund expenses as follows.

1. Capital. Capital asset acquisition in proprietary funds is accounted for using the flow of economic resources method. Amounts disbursed for the acquisition of capital assets are not recorded as an expense. Instead, the appropriate property, plant, or equipment asset account is debited on the purchase. Depreciation expense is recorded to reflect the allocation of the cost of the assets to operations over the service life of the asset.

2. Debt Service. Principal payments on debt do not represent expenses for proprietary funds but rather are recorded as a reduction of the obligation. Payments of interest represent expenses to be accounted for on the accrual basis of accounting. Accrual of interest at year-end is usually necessary to reflect the proper amount of expense for the period.

AUTHORITY NOTE: Promulgated in accordance with R.S. 17:6(A)(10).

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