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Business and Policy Areas
Business and Policy Areas

Public Institution’s Resource Flow Measure


Wayne Cate, Chief Business Officer at Teachum State University, has been reading current accounting periodicals that describe measurement focus changes implemented with the new reporting model for public colleges and universities by the Governmental Accounting Standards Board. He wants to know how economic resource flow differs from the accrual accounting presently used by Teachum State.


A critical element in the establishment of generally accepted accounting principles (GAAP) for government funds is the selection of a measurement focus. Unlike the selection of an accounting basis, which is concerned with the timing of transactions and events, a measurement focus identifies what transactions and events should be recorded. Measurement focus is concerned with the inflow and outflow of resources that affect an entity. The statement of financial position or balance sheet reflects those resources that are available to meet current obligations and to be used in the delivery of goods and services in subsequent periods. The statement of activity, change in fund balance or income statement, summarizes those resources received and those consumed during the current period.

The economic resource flow refers to all of the assets available to the organization for providing goods and services. When the flow of economic resources and the accrual basis of accounting are combined, they provide the foundation for GAAP used by business enterprises. Thus, this approach recognizes the deferral and capitalization of expenditures and the deferral of revenues.

When the economic resources flow is applied on an accrual basis for a public college, all assets and liabilities, both current and long-term, are presented in the balance sheet. The activity statement includes all costs of providing goods and services during the period. These costs include depreciation, the net effective interest on debt obligations, the cost of inventories consumed during the period, and other operating expenses. On the activity statement, revenues earned during the period are matched with the total cost. Direct additions to the fund balance (such as new endowment gifts) are not recorded in the activity statement. Expenditures do not include the full cost of purchasing depreciable assets during the period and revenues do not include the proceeds from the issuance of long-term debt.

The fund resource flow previously used by public institutions was concerned with the inflow and outflow of resources that affect the organization. The balance sheet, statement of financial resources, reflected those resources that were available to meet current obligations and that could be used in the delivery of services provided by the college or university. The statement of operations for the period, and changes in fund balance, summarized those resources received and those consumed during the current period.