Importance of Accurate Equipment Coding

Correctly coding equipment and property from the beginning is important because the codes affect so many activities in the life cycle of your equipment. If property codes are incorrect, there may be difficulties processing a new acquisition in FABweb, conducting the biennial inventory for a unit, or responding to auditors' questions.

Account Code

An account code categorizes equipment by cost and type. If units fail to enter an equipment account code when an item is purchased, there will be no skeletal record in FABweb and Banner Fixed Assets. In addition, equipment without a code will not be capitalized correctly. Capitalizing equipment is an important part of the University of Illinois System’s total financial picture. Units must submit a Journal Voucher form to correct an incorrect account code.

If a unit remodels, renovates, or performs maintenance that is over $250,000, the cost may be subject to capitalization. Consult Capitalized Construction Projects.

If a unit purchases or develops an intangible asset, the cost may be subject to capitalization. Consult with University Property Accounting and Reporting (UPAR) for the correct account code.

Commodity Code

Categorizes equipment for reporting purposes; used to assign a useful life to an item for depreciation. If an item's commodity code is incorrect, that item will not be classified or depreciated correctly.

Condition Code

Indicates the use status of a fixed asset, such as whether it is being used by the unit, or is on loan to an employee. If an item's condition code is incorrect, it will adversely affect the facilities and administrative (F&A) rate, the overhead we charge to all grants for using our facilities.

Entity Code

Identifies the type of self-supporting activity, or "entity" for which a piece of equipment is currently used. If an entity code is incorrect, units must submit an Entity Code Change Request to correct it.

Location Code

Identifies the university, building, and room where a piece of equipment can be found. If even the room information is missing or incorrect it will adversely affect the facilities and administrative (F&A) rate, the overhead charged to all grants for using system or university facilities. In addition, the biennial inventory will be more difficult to complete because the location(s) of the item(s) will not be known.

Importance of Capitalizing

Capitalization means to classify the cost of an item as a long-term investment because that item will be used over a period of time. Therefore, that item's cost is not charged against the earnings of one fiscal year as part of the cost of day-to-day operations, it is instead charged over several fiscal years. Because the item is worth less in each succeeding fiscal year, the amount that is charged each year is depreciated. Depreciation reflects the reduction in the value of the item due to obsolescence and wear and tear. University Property Accounting and Reporting (UPAR) calculates capitalization and depreciation for units each year, so units do not have to perform that function. Accurate capitalization and depreciation are important because they are part of maintaining accurate records about system equipment and property.

The system maintains accurate property records because:

• It is required by system policy and state law (Illinois Property Control Act (30 ILCS 605/)).
• It is required under the Government Accounting Standards Board (GASB) and Financial Accounting Standards Board (FASB).
• Equipment records are part of the system overhead, which is used in calculating the facilities and administrative (F&A) rate, the indirect cost charged sponsored projects. If the calculation is wrong, it could cost the system money.
• Property records are part of system financial statements, which affect our ability to raise money because the statements are used to calculate the system’s credit score. The System’s credit score affects our bond rating.

By following consistent accounting principles from GASB and FASB, it is possible to perform financial analysis comparing one unit to another and the system to other universities. It helps us determine our general financial health.

The codes outlined above form the basis for all this.