2100 Revenue Principles, General

Responsible Official: 
Controller
Responsible Office: 
Finance
Effective Date: 
August 24, 1999
Revision Date: 
December 9, 2014

Scope

This policy provides general principles and guidelines to promote effective control over, and proper accounting of, revenues from external sources and the related accounts receivable.

The scope of this policy excludes income and gains earned on the University’s investment portfolios and revenues derived from internal sources (e.g. through the provision of services to other Yale units).

Policy Statement

Revenue agreements, accounting, billing and collection activities must comply with all federal, state and University requirements as well as with the terms and conditions set forth in specific revenue agreements.  All departments and central offices that collect and process revenue on behalf of the University must ensure that:

  • Revenue agreements are created and properly authorized whenever the University commits to provide services, goods, or assets to external parties.
  • All revenue is accurately recorded in the University’s accounting system in the period in which it is earned.
  • Appropriate internal controls and sound financial business practices are adopted for the recognition and billing of revenue, the collection and timely recording and deposit of cash receipts, and the management of accounts receivable.

University revenue is recorded on an accrual basis at net realizable value in accordance with Generally Accepted Accounting Principles (GAAP).

Reason for the Policy

Effective revenue financial management and control is a critical component of the University’s business processes because it serves to safeguards against risk of financial loss and properly recognize revenue in conformity with GAAP.

Definitions

Accrual basis accounting

An accounting method that recognizes revenue when it is earned, not when the cash is received. Similarly, the accrual basis of accounting requires that expenses be recorded when they are incurred, not when the cash is disbursed.

Agreement

A written document between the University and an external party that is executed by authorized individuals and binds the University to provide goods, services or assets in exchange for revenue.

Constructive Receipt

Income is constructively received by a taxpayer, and thus subject to income tax, in the taxable year during which it is made available to him/her, regardless of whether the taxpayer declines to receive the income in the current taxable year or directs payment of the income to another taxpayer.

Income is constructively received when an amount is credited to your account or made available to you without restriction. You need not have possession of it. If you authorize someone to be your agent and receive income for you, you are considered to have received it when your agent receives it. Income is not constructively received if your control of its receipt is subject to substantial restrictions or limitations.

Deferred Revenue

Deferred revenue results when cash is received in advance of revenue being earned.  It is recorded on the University’s balance sheet as a liability until the University has provided the services or delivered the goods.

Net realizable value

Estimated net value of an asset after reductions for allowances for uncollectible amounts, provisions for contractual adjustments, and discounts recorded to reflect the net present value of long-term receivables.

Revenue

Income earned through the sale of goods or services or any other use of capital.  The University has six principal operating revenue streams, which are as follows:

  • tuition, room and board;
  • grant and contract income;
  • medical services income;
  • investment income;
  • contributions; and
  • income from other sources.

Policy Sections

2100.1 Revenue Agreements

Any commitment made on the University’s behalf to provide goods, services, or assets to an external party must be documented in a written revenue agreement executed by an authorized individual. Refer to Procedure 2100 PR.01 for guidance on who to contact and the process to follow for drafting, negotiating, obtaining appropriate review, and executing different kinds of revenue agreements.

If the revenue agreement raises constructive receipt, tax-exempt bond compliance, insurance, tax, or other issues, then the contact unit, reviewer and/or signer will ensure that these issues are addressed by the appropriate units before the revenue agreement is executed.

The revenue agreement must be signed by an authorized individual (link to Signature Authority tool).  Generally, the reviewer will forward the agreement to an authorized individual for signature once they have reviewed and obtained necessary approvals for the agreement.  To identify who should be reviewing and signing a specific type of revenue agreement, use the Signature Authority Tool (link).  For more information on signature authority, see Policy 1104 Signature Authority, Approval Authority and Access for Financial Transactions.

2100.2 Revenue Recognition Principles

Because the University uses accrual basis accounting, all material amounts of revenue and the associated accounts receivable and deferred revenue must be recognized in the University’s accounting system in the period in which it is earned; and accounts should be established for uncollectible accounts, provisions for contractual adjustments, and discounts where necessary.

In addition to being timely recorded, these transactions must be accurately recorded.   

2100.3 Billing, Collections, and Write-offs

Lead administrators must establish processes and controls that meet the following general guidelines for all revenue streams under their control.

  1. Billings must be performed in a timely manner, as is appropriate for each individual revenue stream.
  2. Duties related to the preparation of bills, the collection of cash, the posting of cash receipts, approval of write-offs, and the monitoring of accounts receivable and deferred revenue should be segregated among multiple individuals to provide for adequate internal control.
  3. The depositing and recording of cash and checks collected from external customers, sponsors, and donors, must conform to Policy 2801 Depositing and Recording University Funds. Whenever possible, lockbox arrangements should be used to promote the timely deposit and efficient processing of checks. For further guidance on handling revenues from gifts, see Policy 2200 Gifts to the University.
  4. The University accepts credit and debit cards for payment of tuition, room and board, gifts, application fees, health care services and a variety of other revenue generating activities at the University. To be able to accept credit and debit cards for payment, see Policy 2820 Acceptance of Credit and Debit Card Payments. The department initiating the credit card activity is responsible for reconciling credit card activity to the general ledger and to statements from the credit card vendor.
  5. Detailed accounts receivable sub ledgers including independent systems shall be reconciled to general ledger summary account balances no less frequently than monthly. Reconciling items should be resolved within 30 days following the completion of such reconciliation.
  6. Accounts receivable shall be aged and analyzed for collectability to determine its net realizable value. This analysis should be done monthly but the frequency of this analysis can be determined in consultation with the Controller’s Office based on the materiality of the activity and other relevant factors. All material adjustments to provisions for uncollectible accounts and other contractual allowances should be recorded in the University’s accounting system no less frequently than monthly.
  7. Write-offs of accounts receivable balances must be properly authorized as set forth in departmental procedures governing each type of revenue. Proper accounts receivable management includes periodic analyses of older receivable balances and the write off of balances where amounts are determined to be uncollectible.
  8. Collection Agency: It may be necessary to outsource part of the collection process when internal efforts are not sufficient or when it is more efficient to do so. Agreements with collection agencies should be reviewed and approved by the General Counsel’s Office.

Roles and Responsibilities

Lead Administrators and Operations Managers

Lead Administrators or operations managers whose units generate and/or collect revenue on behalf of the University are directly responsible for ensuring compliance with all sections of this policy. Such Lead Administrators must also work with the Controller’s Office to develop and maintain additional revenue policies specific to their revenue streams, if necessary.

  • Create and properly authorize revenue agreements whenever the University commits to providing services, goods, or assets to external parties.
  • Accurately record all revenue in the University’s accounting system in the period in which it is earned.
  • Establish allowances for uncollectible accounts, provisions for contractual adjustments, and discounts to reflect the net present value of long-term receivables.
  • Bill customers promptly.
  • Establish a process that has a segregation of duties.
  • Follow Policy 2801 Depositing and Recording University funds when performing these tasks (link).
  • Adopt appropriate internal controls and sound financial business practices for the recognition and billing of revenue, the collection and timely recording and deposit of cash receipts, and the management of accounts receivable.
  • Reconcile credit and debit card statements to the general ledger.
  • Reconcile accounts receivable in sub ledgers and independent systems to the general ledger monthly.
  • Analyze accounts receivable at least monthly.
  • Write off accounts receivable balances as stated in departmental procedures.

Controller’s Office

  • Provide guidance regarding general revenue principles by keeping this Policy up-to-date and preparing procedures as needed.
  • Work with Lead Administrators to develop and maintain additional revenue procedures specific to their revenue streams, if necessary.
  • Monitor the general ledger to ensure compliance with the requirements set forth in this policy.
  • Assist Lead Administrators and operations managers in writing off uncollectable amounts.

General Counsel’s Office

  • Approve the form of all revenue agreements used by the University.
  • Provide guidance regarding the negotiation and acceptance of collection agreements.

General Counsel’s Office, Office of Grant and Contract Administration, Office of Cooperative Research and Other Contacts for Revenue Agreements (as identified in Procedure 2100 PR.01 Process for Executing Revenue Agreements)

  • Provide guidance for properly executing revenue agreements.  This may include providing a template for the revenue agreement; negotiating terms and conditions for agreements that are not in standard form; identifying the need for and obtaining approvals relating to constructive receipt, taxes, insurance, or other requirements; obtaining an authorized signature on the document; returning the executed document to the requestor; and retaining a copy for Yale’s files. 

Authorized Signers

  • Sign the revenue agreement if the proper approvals have been obtained.

Vice President for Finance and Administration

  • Authorize or, consistent with approval of the Yale Corporation Committee on Finance, delegate authority to review and approve agreements within each institutional revenue stream.