Harvard University Policy:

A liability is an element of the financial statement constituting claims against assets at a point in time or as of a certain date.

More specifically, the Financial Accounting Standards Board, SFAC No. 6 "Statement of Accounting Concepts" defines liabilities as probable future sacrifices of economic benefits arising from present obligations of an entity to transfer assets or provide services in the future as a result of past transactions and events. For example, purchase of goods and services on credit, financing construction of a building, and taxes incurred but not yet paid.

In simple terms, liabilities represent the University's financial obligations to outside parties who have furnished resources to the University.

The policy on accounting for liabilities establishes the fundamental guidelines and GAAP accounting practices for properly accounting and reporting liabilities on the University's Balance Sheet.

For financial statement and government reporting purposes, this policy includes all items reported in the liability section of the University's Balance Sheet.

A liability has the following primary attributes:

• The transfer of assets or services is at a specified or determinable date.

• The University has little control or discretion to avoid the transfer.

• The transaction or event causing the obligation has already happened.

 

Liabilities are reported on the University's Balance Sheet using the accrual basis of accounting.

The accrual basis of accounting records the effects of a transaction and other events in the periods when they occur instead of only in the periods when cash is received or paid. Accordingly, accrual accounting considers not only cash transactions but also noncash transactions and exchanges of goods and services.

The accrual basis of accounting focuses on inflows of assets from operations (revenues) and uses of assets in operations (expenses), regardless of whether those inflows and outflows currently produce or use cash.

Liabilities are classified on the University's Balance Sheet in ascending order of time to maturity.

Liabilities are also further classified into current and noncurrent categories. These distinctions are implicit in the natural ascending order of the liabilities on the Balance Sheet. For financial reporting purposes, these category distinctions do not need to be explicitly stated on the Balance Sheet.

Valuation accounts are used to change the carrying amount of bond liabilities only. Like asset valuation accounts, they are considered an essential part of the liability. All other liabilities do not have valuation account associations.

There are two valuation accounts associated with bond liabilities, bond premium which decreases the carrying amount of the bond liability, and bond discount which increases the carrying amount of the bond liability.

Liabilities are reported on the Balance Sheet using various valuation measurements.

The table below describes the various measurements used to record assets on the Balance Sheet.

Responsibility:

The Office of Financial Systems is responsible for writing, updating, and interpreting this policy.

The Financial Deans of the University are responsible for enforcing this policy.

For assistance in interpreting this policy, please call your Tub Financial Office.

Schedule A: Harvard Balance Sheet Liability Categories, Valuation, Definitions, and Object Codes