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Recording of All Costs Through GAAP


Nutrition Services Division Management Bulletin

To: Child and Adult Care Food Programs

Number: 06-218

Attention: Food Program Director

Date: September 2006

Subject: Recording of All Costs Through Generally Accepted Accounting Principles

Reference: United States Department of Agriculture, Food and Nutrition Service Instruction 796-2, Revision 3, Section VII (A)

This Management Bulletin clarifies the United States Department of Agriculture (USDA), Food and Nutrition Service (FNS) Instruction 796-2, Revision 3, Section VII (A) that requires agencies to account for all costs of operation through the consistent use of “generally accepted accounting principles” (GAAP).

Please note that some operating costs consistent with GAAP may be considered allowable operating or administrative costs under the Child and Adult Care Food Program (CACFP), while others may be unallowable. Some unallowable costs may be necessary and reasonable for operation of the agency but are not allowable CACFP costs even if the preponderance of the agency’s revenue is from the CACFP.

Accounting for All Costs of Operation

USDA has defined in-kind services as costs that are actual cash expenditures that have been paid by the agency, even though the CACFP may not have been billed for its share of the costs. In-kind contributions represent donations to the agency from third parties, not costs incurred elsewhere within the institution. Under the GAAP, both in-kind services and contributions must be accounted for in the agency’s financial records.

Day Care Home sponsors must account for both in-kind services and contributions in their annual administrative budgets as either direct or indirect costs. If a sponsor does not have an approved indirect cost rate, they should direct charge such costs in their financial records.

Generally Accepted Accounting Principles (GAAP)

Generally accepted accounting principles are rules and procedures that govern accounting for financial transactions. Generally accepted accounting principles are derived from a variety of sources, including the Governmental Accounting Standards Board and the Federal Accounting Standards Advisory Board. Institutions participating in the CACFP are required to follow GAAP.

Cash or Accrual Accounting

Agencies may maintain accounting records on an accrual basis (recording expenses and income when incurred); a cash basis (recording expenses and income when paid/received); or a modified accrual basis (recording certain expenses and income on a cash basis while recording other costs and expenses on an accrual basis); however, the agency’s accounting system must treat costs consistently. Day care home sponsors’ final claim for reimbursement for the fiscal year must reflect costs on an accrual basis. Appropriate precautions also must be taken to ensure that the accrued costs and income reported on the final claim are not reported again in a future period.

Questions:   Community Nutrition Programs Unit | 800-952-5609
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