2100 Revenue Principles, General
2100.1 Revenue Recognition Principles
2100.2 Billing, Collections, and Write-Offs
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).
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 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; and
- Revenue agreements are created and properly authorized whenever the University commits to provide services, goods, or assets to external parties.
University Revenue is generally recorded on an accrual basis at Net Realizable Value. The University records Revenue in accordance with accounting principles generally accepted in the United States (“US GAAP”). The University’s annual externally audited financial statements are prepared on this basis.
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 US GAAP.
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.
Income is constructively received by a taxpayer, and thus subject to income tax, in the taxable year during which it is made available to the taxpayer, 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 the taxpayer’s account or made available to the taxpayer without restriction. The taxpayer need not have possession of it. If the taxpayer authorizes someone to be their agent and receive income for the taxpayer, the taxpayer is considered to have received it when their agent receives it. Income is not constructively received if the taxpayer’s control of its receipt is subject to substantial restrictions or limitations.
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.
An agreement with an external party is “Mission-Related” if it will further Yale’s research, education, or patient-care missions. The activity performed under a Mission-Related agreement, subject to the notes below, is not an “unrelated trade or business” (“UTB”) for tax purposes.
- Note: The agreement must be “substantially” related to Yale’s mission (i.e., it contributes importantly to the accomplishment of the mission) to be considered “related,” and thus not UTB.
- Note: Agreements are not considered to be “related” to the mission if the only relationship the sale has to the mission is that the profits from the agreement are used to support the mission.
The review and approval process for certain types of agreement may differ depending on whether the agreement is Mission-Related or Non-Mission-Related.
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.
Income earned through the sale of goods or services or any other use of capital. The University has several principal operating Revenue streams, which are as follows:
- Net tuition, room and board;
- Grant and contract income;
- Medical services income;
- Allocation of endowment spending;
- Other investment income; and
- Other income
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 other assets in exchange for Revenue.
Because the University uses Accrual Basis Accounting, 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, in accordance with US GAAP. In addition, 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.
Lead administrators must establish processes and controls that meet the following general guidelines for all Revenue streams under their control.
A. Billings must be performed in a timely manner, as is appropriate for each individual Revenue stream.
B. 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.
C. 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.
D. The University accepts credit and debit cards for Revenue generating activities at the University. To be able to accept credit and debit cards for payment, see Policy 2820 Acceptance of Payment Cards. 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.
E. Detailed accounts receivable sub-ledgers, including independent systems, must be reconciled to general ledger summary account balances no less frequently than monthly. For further guidance on performing a reconciliation, refer to the Accounting Manual: Account Reconciliation Template and the Financial Review Checklist.
F. Accounts receivable must be aged and analyzed for collectability to determine their Net Realizable Value. This analysis should be performed monthly. All material adjustments to provisions for uncollectible accounts and other contractual allowances should be recorded in the University’s accounting system. For more information, refer to the Accounting Manual: Non-Sponsored AR Accounting and Guidance.
G. 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. For more information, refer to the Accounting Manual: Non-Sponsored AR Accounting and Guidance.
Any commitment made on the University’s behalf to provide goods, services, or other assets to an external party must be documented in a written Revenue Agreement executed by an authorized individual. Refer to Procedure 2100 PR.01 Executing Revenue Agreements, Sections 2 – 9, for guidance on who to contact and the process to follow for drafting, negotiating, obtaining appropriate review, and executing the following kinds of Revenue Agreements:
- Section 2 – research-related agreements, including sponsored research agreements, clinical trial agreements, visiting scientist agreements, and material transfer agreements;
- Section 3 - licensing agreements, including technology transfer agreements and other licensing and permissions relating to University-held copyrights and trademarks;
- Section 4 - service agreements;
- Section 5 - clinical services agreements;
- Section 6 - training agreements;
- Section 7 - short-term use of Yale space by external parties;
- Section 8 - longer-term lease of Yale space by external parties; and
- Section 9 - corporate sponsorships.
If the Revenue Agreement raises Constructive Receipt, tax-exempt bond compliance, insurance, tax, or other issues, then the contact unit, reviewer, and/or signer must ensure that these issues are addressed by the appropriate unit(s) before the Revenue Agreement is executed. Refer to Procedure 2100 PR.01 Executing Revenue Agreements for information related to each type of Revenue Agreement and the respective contacts.
The Revenue Agreement must be signed by an authorized individual. Generally, the reviewer – as defined within the sections above – forwards the agreement to an authorized individual for signature once they have reviewed and obtained the necessary approvals for the agreement. To identify who should be reviewing and signing a specific type of Revenue Agreement, use the Signature Authority Tool. For more information on signature authority, see Policy 1104 University Signature Authority.
Special Situations and Exceptions
Exceptions to this policy require prior approval by the Controller’s Office, in consultation with the Provost’s Office, General Counsel, or an Officer of the Corporation, as appropriate.
Roles & Responsibilities
Lead Administrator (or designee)
- Responsible for ensuring their unit’s compliance with all sections of this policy. Lead Administrators (or designees) whose units generate and/or collect Revenue must also work with the Controller’s Office to develop and maintain additional Revenue policies specific to their Revenue streams, if necessary.
- Create and oversee authorization of Revenue Agreements whenever the University commits to providing services, goods, or other assets to external parties.
- Adopt appropriate internal controls, including a process that has segregation of duties, 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.
- Responsible for the retention of signed Revenue Agreements requested and/or facilitated by their unit.
- Provide guidance regarding general Revenue principles by keeping this policy up-to-date, preparing procedures, and answering departmental questions, as needed.
- Provide guidance to Lead Administrators to develop and maintain additional Revenue procedures specific to their Revenue streams, if necessary.
General Counsel’s Office
- Review and negotiate Revenue Agreements used by the University, as outlined in Section 2100.3, above.
- Advise the Office of Sponsored Projects, Yale Ventures, and other contacts on Revenue Agreements, as outlined in Section 2100.3, above.
- Provide advice, guidance, and support for properly executing Revenue Agreements.
- Sign the Revenue Agreement if the proper approvals have been obtained.