Workers' compensation claims are recognized as expenses in the period incurred. Annually, the consult-
ing actuary for the State Accident Fund estimates the liability for injuries incurred but not reported, the fu-
ture liability on claims before the commission, and permanent awards. These liabilities are reported as ac-
crued insurance losses.

Inventories:

Inventories of the State Use Industries are stated at the lower of cost, using the first-in, first-out
method, or market.

Nonexpendable and Pension Trust Fund Balances:

Fund balances of nonexpendable and pension trust funds are restricted to the purpose of the fund and
are reported as fund balance reserves.

D. Higher Education and University Hospital Fund:
Basis of Accounting:

The accounts of the higher education institutions and the University of Maryland Hospital are main-
tained and reported on the accrual basis of accounting.

Fund Accounting:

The financial activities of the higher education institutions and the University of Maryland Hospital are
recorded in funds which classify the various transactions by specified activities or objectives. Fund balances
of such funds are reported as reserved for higher education programs and higher education endowment and
similar funds.

Unrestricted revenue is accounted for in the current unrestricted fund. Restricted gifts, grants, endow-
ment income and other restricted resources are accounted for in the current restricted fund, loan funds, en-
dowment and similar funds and plant funds. Revenue and expenses are reported in the current restricted
fund when financial resources are used for the current operating purposes for which they have been pro-
vided. Transactions related to the various student loan programs operated by the educational institutions
are accounted for in loan funds. Resources dedicated to the acquisition and investment in property, plant and
equipment are accounted for in the plant funds. To the extent Current funds are used to finance plant assets,
the amounts so provided are accounted for as (1) expenses, in the case of normal replacement of movable
equipment and library books; (2) mandatory transfers, in the case of required provisions for debt repayment
and interest and equipment renewals and replacements; and (3) transfers of a nonmandatory nature in all

other cases.

General endowment funds are subject to the restrictions of gift instruments requiring the principal be
invested in perpetuity and the income only be utilized. Term endowment funds are similar to endowment
funds except, upon the passage of a stated period of time or the occurrence of a particular event, all or part of
the principal may be expended. Quasi-endowment funds have been established for the same purposes as en-
dowment funds, except any portion of quasi-endowment funds may be expended. The balances of the fund
groups which comprise the endowment and similar funds are general endowment ($15,567,000), term endow-
ments ($29,000), and quasi-endowments ($3,401,000).

Investments:

Investments of the higher education institutions are stated at cost, adjusted for amortization of pre-
miums and accretion of discounts, plus accrued income.

Student and Patient Revenues:

Student tuition and fees are. fully recognized as revenues in the fiscal year in which the related courses
or activities are principally conducted. Student tuition and fees applicable to future courses and activities
and collected as of the end of the fiscal year are recorded as deferred revenue.

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