Serials Review

ISSN: 0098-7913 (Print) 1879-095X (Online) Journal homepage: https://www.tandfonline.com/loi/usrv20

Accounting Concepts for Managing the Collections

Budget

Abigail Bibee (Contributor)

To cite this article: Abigail Bibee (Contributor) (2020): Accounting Concepts for Managing the
Collections Budget, Serials Review, DOI: 10.1080/00987913.2020.1720899

To link to this article: https://doi.org/10.1080/00987913.2020.1720899

Published online: 10 Feb 2020.

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SERIALS REVIEW
https://doi.org/10.1080/00987913.2020.1720899

SHARPEST TOOL IN THE SHED: ELYSSA M. GOULD, COLUMN EDITOR

Accounting Concepts for Managing the Collections Budget

Abigail Bibee, Contributor
Technical Services Librarian, University of Arizona Libraries, Tucson, AZ, USA

ABSTRACT KEYWORDS
This segment of Sharpest Tool in the Shed provides an overview of acquisitions accounting Acquisitions; collections
principles and how these concepts can help acquisitions staff and budget managers moni- budget; encumbrances;
tor, track, and project the collections budget to prevent overspending or underspending. integrated library systems
Focusing primarily on encumbrances, this article will review the basic accounting equation
for library funds, identify common encumbrance problems and pitfalls, and briefly discuss
the impact of library system migrations on encumbrances and fund data.

Introduction
How much money is available to spend on

With library budgets as strained as ever, there is little
room for error when it comes to managing the collec-
tions budget. Each year, inflationary increases for big
deal journal packages, electronic databases, and serial
subscriptions all reduce flexibility within the collec-
tions budget. Any tool to help track, monitor, and
project annual library collections expenditures is well
worth understanding as thoroughly as possible. The
basic acquisitions accounting framework built into
integrated library systems (ILS) and library services
platforms (LSP) provides the ability to monitor and
track spending, which in turn can help librarians
understand and manage their collections budgets bet-
ter. Most of the concepts in this article will be well-
worn ground for long- time serials and acquisitions
librarians. But for librarians new to an acquisitions or
budget manager role, understanding accounting prin-
ciples is imperative to successfully and confidently
manage the collections budget. This article will review
the basic accounting equation for library funds, the
important role of encumbrances, and how library sys-
tem migrations impact fund and encumbrance data.
Accounting practices, requirements, and reporting
needs vary by library. At a minimum, the acquisitions
functionality of the library system, when properly con-
figured, should be able to answer the following critical
questions regarding the collections budget:

How much money is projected to be spent this
fiscal year?
new resources?

Which funds are overspent and underspent?

How quickly are the allocated funds being spent?
When administrators ask for this information, the
request may cause stress and anxiety for budget man-
agers, especially if the library has overspent its allo-
cated funds in recent fiscal years. Therefore, investing
time in understanding the tools within the library sys-
tem that help track, monitor, and report on the collec-
tions budget is well worth the effort. Granskog (1999)
explains that if good acquisitions accounting practices
are maintained, they can “prevent overspending or
underspending, aid in financial decision making and
budget planning, and result in clear audit trails and
good library-vendor relations” (p. 286). These out-
comes are desired by all libraries and closely
align with how effectively the collections budget
is managed.
The basics
Prior to the automation of library systems, hand ledg-
ers were used to keep track of collections expendi-
tures. Explaining the design of a manual, handwritten
system, Hoffman (1977) noted, “Such a system must
be complete, accurate, flexible, and responsive. In add-
ition, the system should also be simple and cheap”
(p.1). Librarians desire the same qualities in the
acquisitions functionality of the library system today.
Fund transactions are processed instantaneously,

CONTACT Elyssa M. Gould egould1@utk.edu Head Acquisitions and Continuing Resources, University of Tennessee Libraries, Knoxville, TN, USA
ß 2020 The Author(s). Published with license by Taylor & Francis Group, LLC
2 SHARPEST TOOL IN THE SHED
allowing acquisitions librarians and staff to have only
a basic understanding of the transactions occurring in
the system. Collections budget managers do not
necessarily have a deep background in bookkeeping or
accounting, so trusting the library system to accurately
manage and control funds, track and monitor spend-
ing, and report out on the budget is imperative. “The
computer SHOULD track the encumbrances, expendi-
tures, free balances, and cash balances, and provide
accurate, timely reports recording up-to-the-minute
fund information. If this is not the case, the acquisi-
tions librarian and staff will be ill-prepared to handle
an audit when it comes, not to mention the fact that
they will never know if or when their money is spent”
(Faust, 1995, p. 200).
Most libraries use several funds to track collections
expenditures. This accounting system is known as
fund accounting. Each fund comprises the following
accounts: fund allocation (also known as appropria-
tions), encumbrances, expenditures (also known as
payments), and free money (also known as free bal-
ance or unencumbered balance). Each account con-
tains all the information needed to keep tabs on the
status of the budget. If one account is missing or
inaccurate, it can lead to serious problems, like not
knowing whether the money allocated for the fund
has been under or overspent.
The simple bookkeeping equation for library funds is:
fund allocation ¼ encumbrances þ payments
þ free money
In this equation, the fund allocation is the amount
of money allocated to the fund to purchase resources.
This is usually determined toward the beginning of
the fiscal period during the allocation process.
Encumbrances represent earmarked money set aside
to pay for committed orders when payment is due in
the future. “The purpose of an encumbrance is to
show that legally appropriated funds have been com-
mitted to making a purchase, thus reducing the fund-
ing available for spending” (Smith, 2002, p. 82).
Payments represent expenditures for materials that
have already been invoiced and paid. As payments
are made, the encumbrance is released or disencum-
bered, and the amount paid is reflected in the pay-
ment account. Finally, free money represents money
available for new purchases. Having each fund bro-
ken down into this simple equation allows budget
managers to monitor overall spending so that at any
point in the year there is a clear picture of how
much free money is available to spend on new pur-
chases and when there is little to no money left to
spend. To identify the free money use the following
equation:
free money ¼ fund allocation
 ðencumbrances þ paymentsÞ
Depending on the library system, different termin-
ology may be used to identify the fund account com-
ponents. Identifying the account terms found in order
records, reports, ledgers and other fields that appear
in the system is an essential first step in understand-
ing and managing the fund.
The thing about encumbrances
Encumbrances are the star of the fund equation.
Without encumbrances, budget managers are unable
to track how much money should be set aside for
ongoing commitments and how much free money is
available to spend on new purchases. However, they
must be understood and thoughtfully considered each
fiscal year in order to be fully relied upon.
Encumbrances are a judgment call, a guesstimate of
how much each resource is expected to cost each
year. While acquisitions staff strive to base encum-
brances on data accessible at the time of order, this
information is not always available, due to the nature
of library resources. For monographs, encumbrances
are a one-time earmark; for subscriptions and stand-
ing orders, encumbrances form the basis of the annual
ongoing commitment until the order is canceled
or closed.
Some libraries choose not to encumber on a title
by title basis but instead project anticipated expendi-
tures at the fund level. This practice may be appropri-
ate for subscription funds, as it is possible to project
inflationary increases and allocate the anticipated
expenditures at the beginning of the fiscal year in the
fund allocation. This practice, however, alters the fund
equation, since the encumbrance account is unused
and therefore the free balance is inaccurate. Money
earmarked to be spent on existing orders misleadingly
appears as free money available for spending on new
resources. Granskog (1999) explains, “It must be
noted that although these funds appear in the unen-
cumbered balance account, in practice they are not
considered available funds for other purposes”
(p.296). The downside of not using title by title
encumbrances is the lack of granularity and inability
to use the fund equation to pinpoint money available
to spend on new purchases.

Getting spending just right
The tension between not overspending or under-
spending the collections budget can be a difficult
challenge. If budget managers are surprised to find a
fund overspent, investigating how encumbrances track
ongoing commitments is a key data point to examine.
There are a number of ways to incorrectly interpret or
apply encumbrances–inflationary increases, irregularly
published subscriptions, standing orders, and prepay-
ments are common culprits that can impact encum-
brances and misrepresent the fund account balances.
Inflationary increases cause uncertainty for library
collections budgets every year. Some of this uncertainty,
if anticipated, can be addressed at the beginning of the
fiscal year. For continuing resources, the library system
can apply the previous year’s expenditure to serve as
the new encumbrance at the title level. Anticipated
inflationary increases can be applied at the same time,
but depending on the limitations of the system, the
only option may be to apply the same increase to each
encumbrance across an order type (e.g., monograph,
serial, or standing order). Because continuing resources
generally inflate differently depending on their discip-
line, applying the same increase to all encumbrances
with the same order type can be misleading due to
inflation variations. Some libraries forego applying a flat
inflationary increase and instead manually increase
encumbrances on only the most expensive resources so
that the bulk of the inflationary increases are reflected
in the encumbrances. A different approach rolls over
the previous year’s expenditure as the new encum-
brance and then increases the fund allocation to reflect
expected inflation increase by a certain percentage at
the fund level. None of these approaches are precise.
This is one area where library system functionality
should be improved to give more flexibility to the
library around projecting inflationary increases.
Regardless of the method used to project inflation,
funds should be monitored throughout the year to see
if expenditures keep pace with the fund allocation.
Irregularly published subscriptions and standing
orders can also skew encumbrances because of uncer-
tainty surrounding their publication frequency. If the
projected encumbrance for the year is entered into the
order record at the time of order but not reviewed or
adjusted in subsequent years, money may be incorrectly
set aside as an encumbrance every year the order is
open. This can be misleading and indicate less free
money than what is actually available. While standing
orders typically have a small impact on overall expendi-
tures, they can create erroneous encumbrances. Similarly,
prepaying a subscription or hosting fees multiple years
SERIALS REVIEW 3
in advance can result in encumbrance problems if not
tracked, identified, and modified in future fiscal years.
There are many possible errors that can impact fund
balances due to inflation or erratic subscriptions.
Reviewing all encumbrances at the beginning of the fis-
cal year and adjusting accordingly is a good practice.
Impact of a system migration
Any librarian who has been through a system migra-
tion can attest to its ability to wreak havoc on data,
processes, and workflows. Library fund accounts are
not immune to these disruptions. Major and minor
differences in functionality between systems can result
in negative ramifications for acquisition processes and
in turn the collections budget. As libraries transition
from legacy ILSs to next-generation LSPs, understand-
ing the new system’s order records, terminology, and
acquisitions functionality should be a high priority.
Adjusting to a new library system takes time and
patience. Many acquisitions staff and budget managers
have used a single library system for decades, so there
can be a temptation to develop workarounds in the
new system that mirror processes in the old system.
At times, workarounds are necessary and acceptable
as long as the impact on fund account balances is
considered throughout the year. For example, some
library systems do not require encumbrances in order
records, while others require encumbrances for every
open order. Migrating to a system that requires each
order to hold an encumbrance can impact the accur-
acy of the fund data and create an illusion that less
free money is available. It is important to be aware of
the differences in the new system that have a direct
impact on the free balance because it will impact the
way that the collections budget is managed.
Legacy data migrated into a new library system
impact order and fund information in new ways, pre-
viously unimagined in the old system. Finding errone-
ous data in the new system before it impacts budget
expectations is key. Many errors in fund data are con-
cealed by tidy fund ledgers that break down the
account balances at a high level. It can be difficult to
identify errors until overspending has already
occurred. The best way to begin to uncover erroneous
data lurking in order records and encumbrances is to
create a title by title report for each fund that displays
expenditures and encumbrances side by side. Digging
into title by title reports can reveal a whole host of
problems. These reports can help identify:

orders not disencumbering as expected after payment
4 SHARPEST TOOL IN THE SHED

titles that have not been paid in years but hold
encumbrances

erroneous encumbrances when compared to the
previous year’s expenditures
Careful investigation, cleanup, and troubleshooting
and learning how the new system encumbers, disen-
cumbers, and expends will help prevent collections
budget chaos after a migration.
Conclusion
Managing the collections budget is one of the most
important roles in the library. Encumbrances are a key
component in accurately predicting spending when cor-
rectly configured and understood by budget managers.
Examining each fund’s allocations, encumbrances, pay-
ments, and free money can shed new light on how the
collection is being managed and is a starting point for
getting spending just right. Undoubtedly, this is a tre-
mendous amount of work for a single person or even a
single department. Acquisitions librarians and collections
budget managers should seek opportunities to partner
with the library or institution’s business office to collab-
oratively learn about the complexities of managing the
collections budget using the library system. Whether
doing this as a team or solo, relying on the accounting
tools built into the library system to project, monitor,
and spend the collection budget instills confidence in
managing the budget throughout the fiscal year.
References
Faust, M. (1995). The acquisitions audit in the automated
environment. The Acquisitions Librarian, 7(13–14),
191–207. doi:10.1300/J101v07n13_14
Granskog, K. (1999). Basic acquisitions accounting and
business practice. In K. A. Schmidt (Ed.), The business of
library acquisitions (pp. 285–320). Chicago: American
Library Association.
Hoffman, H. H. (1977). Simple library bookkeeping. Santa
Ana: Headway Publications.
Smith, G. S. (2002). Managerial accounting for libraries and
other not-for-profit organizations. Chicago: American
Library Association.