Let's continue to talk about expenditures. We're going to spend more time on expenditures than any other account in this lesson, because expenditures are the most single important type of account for most administrators. If you're a principal or a district office administrator, unless you're the business manager, you're going to be dealing more with expenditures than anything else. So you need to become familiar with expenditures. Know what they are, how they're organized, what different kinds of expenditures mean, how to recognize the codes, and so forth.

So you use expenditures more than anything else in planning for your budget for next year by seeing what you spent last year, planning what you're going to spend next year, and even looking at how your expenditures are going to go in future years. You also use the expenditure accounts to analyze what's been going on. Are things out of control? Are the trends like you want? And so forth. It just gives you a lot of information.

Now, this information comes at a price because the expenditure classification system is the most complex of any of the types of accounts. Assets had two different kinds of accounts, revenues had two different kinds of accounts. Fund balances have multiple, but they are pretty easy to discern. Revenues have two. Expenditures have up to nine different kinds of dimensions that you need to be aware of.

Also, every expenditure has at least five or six accounting codes-- meaning different dimensions-- that are attached to it. It's not a single code, like a revenue source would be. There are multiple expenditure codes attached, representing the different dimensions of the expenditures. We'll talk about those next.

The primary expenditure dimension-- the one we'll spend most time on-- are the fund, which we've already talked about, the function, the object of the expenditure, the funding source, meaning where the funds come from, instructional organization, what level in the organization is incurred. And those first five are generally required-- they're certainly required in the Pennsylvania reporting system. And one that is not required but is optional that is used by most school districts is called operational unit, and this is largely a cost center where you can collect costs by particular location. We'll talk about that when we get to it.

There are other dimensions that are available that some districts do use. The most common one would be subject matter. For example, in a high school, you can track your expenditures down to mathematics, English language, world languages or type of world language, and so forth. So the accounting system gives you the flexibility to do that.

Now, again, it's a two-edged sword, because you can track information down to, let's say, French or Spanish. At the high school, you also have to spend the time and effort to set up those accounts and to record the information in those accounts. So it doesn't come free, but if the district puts the time and effort into it, they can provide additional information to make the comparison or to analyze the trends. The various dimensions of expenditure accounts are shown in the Chart of Accounts in the Accounting Manual in Sections E through H. And you'll be able to track those exactly where they are accounted from.

Now, before I go into the detail on expenditures, I want to take a slight step back and look at the accounting equation again-- only this time, I want to expand it to include the expenditures and the revenues that we've just talked about. The expanded equation-- you can is assets equals liabilities plus the fund balance plus the revenues minus the expenditures. Just as we said before, revenues are items that add to the fund balance, expenditures are items that decrease the fund balance. So you would add revenues and subtract the expenditures.

Now, at the end of the year-- although you're not accountants-- what does happen is that the revenue and expenditure accounts are closed out to the fund balance, meaning you add all of the revenue accounts to fund balance. You subtract all the expenditure accounts for the fund balance, reset those accounts-- revenues and expenditures-- to zero, and start the new fiscal year at zero amounts for both of those so you can keep track of the amounts for revenues and expenditure during the fiscal year. So when you close those revenue expenditures accounts out tot he fund balance, you either increase or decrease the fund balance depending on what happens during the year.

So now let me shift back to talk about the expenditure accounts. Now I want move into the different expenditure dimensions, the kinds of accounts, that are used to record expenditures. We've talked about funds. So again, we have to include a fund with the expenditure so you know where to record the expenditure, whether it's a general fund or some other fund.

The first major dimension beyond fund is called function. And the function is the why for the expenditure. It's the purpose of the expenditure, what you're doing it for. And it's the activity that you are spending the money for. It's the reason for it. I'm using a lot of different words here, because I want to differentiate-- and sometimes this is confusing-- between what you actually spend the money for. The function is the purpose of the expenditure. The object, which we'll come to next, is what you actually spend the money for.

And you can see these in the separate sub-functions of the functional accounts. There are five major functions. The first-- and these are all four-digit codes. The first, the 1,000s, are the instructions. So any expenditure for instruction would fall under the 1,000 function. Support services are 2,000. Any expenditure for support services falls under 2,000 and will have a 2,000 code, and the same for 3,000 and so forth.

Now, each of these functions has a variety of sub-functions. So depending on how detailed the manual is set up, you can account for the purpose of these expenditures in greater detail. The ones that you'll be using quite frequently will logically be under the instructional function. And within that, you can separate regular education from special education, because they each have different sub-function codes, and so forth.

In the support side, the 2,000 function codes, you have a variety of things going there. Even more people, personnel services, administration, business services-- a whole variety of things here. And again, you can see in the accounting manual and the function drawing in Section E and Chart of Accounts where and what these things are, and what the definitions are for them.

Let me give you a quick definition to help you read through this. The example is given in the lesson. But the four-digit function for, in this case, deaf and hard of hearing programs. This is one you can take down and actually record expenditures by deaf and hard of hearing programs. It's instructional programs, so the first digit's going to be a 1. It's a special program, so the second digit's going to be a 2. The third digit, as you see in the Accounting Manual, will be something called sensory support, which covers several different kinds of disabilities. And the last digit, the fourth digit, is for deaf and hard of hearing.

So you'll be able to take that down to a final code that is associated with an expenditure for deaf and hard of hearing services-- so 1 for instruction, 2 for special programs, 3 for sensory project, and 1 for deaf and hard of hearing. So 1221 is the functional code for that particular expenditure.

Now, for those of you aspiring to be principals, and I expect many of you are, we'll do the same example for the office of the principal. That's a support service. It's not instruction. And read the difference between instruction and support services in the Accounting Manual very close. Instruction are things that have to do with providing instruction. Support services are those activities that will support those activities, but are not instruction themselves.

So it's a support service, so it's a 2 for the first digit. If you look through the sub-functions there, you'll find one of the sub-functions called 2300, which is support services administration, which covers all of the administrative activities. And then if you look further within that, you'll find a third-level function, called office of the principal. And that gives you where you would record any office of principal expenditures. So 2380 would be the function there. You can follow that more closely or review it back in the lesson.

Now, one of the features that's important with the particular function dimension is that it is very useful for budgeting and for management because the functional structure aligns with the typical district organizational chart. When you look at instruction, there are-- and you would combine instruction with several other functions that we'll get to-- you're able to look at the expenditures and collect the expenditures by a particular school or by a particular program in a school, or by all of the different activities, like the office of the principal and custodial service all happening within that school.

So the accounting system, starting with the function, gives you the ability to track expenditures to a particular person who is responsible for those expenditures within the organizational structure. So putting those two together is a very, very helpful and insightful use of the accounting structure.

The second most important accounting code for expenditures is the object of expenditure, often shortened to just object. These are shown in the Chart of Accounts in Section F. This is the what-- what are you actually buying with this money? What are you spending this money? What is it that shows up as the item that is purchased?

Now, within the object, there are nine major objects. And each of those are specified and defined within the chart of accounts. Most of these are fairly self-explanatory, at least at the major object level. Objects have three digits in their code. Salaries are all the 100s. They show up there. Benefits are 200s. 300, 400, and 500 are different kinds of purchase services, and we'll talk about those in a moment-- supplies, some property, and you see the others. So there are a whole variety of places to go. Again, if you're not sure of what something is, look for it in the Chart of Accounts under where you think it might be.