Park City uses encumbrance accounting and formally integrates its budget into the general fund's accounting records. For the year ending July 31, 2005, the following budget was adopted: Show Estimated revenues A. $3,000,000 credit balance. Recommended textbook solutions Intermediate Accounting14th EditionDonald E. Kieso, Jerry J. Weygandt, Terry D. Warfield 1,471 solutions Financial Accounting4th EditionDon Herrmann, J. David Spiceland, Wayne Thomas 1,097 solutions Fundamentals of Financial Management14th EditionEugene F. Brigham, Joel F Houston 845 solutions
Fundamentals of Financial Management, Concise Edition10th EditionEugene F. Brigham, Joel Houston 777 solutions Example: There were $2,000,000 of purchase orders outstanding at the end of the year. There were no nonspendable, restricted, committed, or assigned amounts in the fund balance. Currently, Morgan City's General Fund has an Unassigned, Undesignated Fund Balance of $3,000,000 ($10,000,000 assets less $7,000,000 liabilities). Since there are no nonspendable, restrictions, commitments, or assigned amounts within the fund balance, this entire amount is available for appropriation (e.g., the legislative body can decide to spend the money). However, is that money truly available? Consider the outstanding purchase orders. They are not included in Liabilities, but they are legal obligations to purchase goods. Should the amount available for appropriation really be $1,000,000 ($3,000,000 less $2,000,000 outstanding purchase orders)? The closing entry for the encumbrances takes note of this legal obligation: Budgetary Fund Balance $2,000,000 Unassigned Fund Balance $2,000,000 As a result of these entries, the Unassigned Fund Balance is now $1,000,000 ($10,000,000 assets less $7,000,000 liabilities less $2,000,000 outstanding purchase orders/encumbrances). The obligation for the outstanding purchase orders is seen in the Fund Balance Assigned account balance of $2,000,000. Recommended textbook solutionsIntermediate Accounting14th EditionDonald E. Kieso, Jerry J. Weygandt, Terry D. Warfield 1,471 solutions Financial Accounting4th EditionDon Herrmann, J. David Spiceland, Wayne Thomas 1,097 solutions Cost Accounting: A Managerial Emphasis15th EditionCharles T. Horngren, Madhav V Rajan, Srikant M. Datar 853 solutions
Financial and Managerial Accounting: Information for Decisions6th EditionBarbara Chiappetta, John J. Wild, Ken W. Shaw 1,522 solutions What does encumbrance mean in accounting?An Encumbrance is a type of transaction created on the General Ledger when a Purchase Order (PO), Travel Authorization (TA), or Pre-Encumbrance (PE) document is finalized. The encumbrance transaction shows an outstanding commitment by an organization.
What is the purpose of accounting quizlet?Accounting is the process of recording, analyzing, interpreting and communicating the financial activity of an individual or organization. The purpose of accounting is to allow interested users to make informed judgements based on accurately recorded information. Net worth = Assets - Liabilities.
Are encumbrances a debit or credit?Is encumbrance a debit or credit? Encumbrance is considered a debit balance account. When you need to allot money for a future payment, such as when a purchase order is approved, the encumbrance account is debited. In the future, when you pay that sum off, the encumbrance account is credited.
What is encumbrance and expenditure?Encumbrances are also known as pre-expenditures since they act as budgeted reserve funds before the actual expenditure. While appropriations are money set aside for budgetary line items, encumbrances are reserves for a specific item. Some examples of encumbrances are utility payments, tax payments, and payroll.
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What is the purpose of encumbrance accounting quizlet?
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