A city issues a purchase order for $10,000 of supplies. What journal entry is made in the General Fund?

Answer options:

Debit Encumbrances; Credit Budgetary Fund Balance - Reserve for Encumbrances.

Debit Expenditures; Credit Vouchers Payable.

Debit Supplies; Credit Accounts Payable.

No entry until goods are received.

How to approach this question

Purchase Order = Encumbrance. Entry: DR Encumbrances, CR Reserve for Encumbrances.

Full Answer

A.Debit Encumbrances; Credit Budgetary Fund Balance - Reserve for Encumbrances.✓ Correct

When a purchase order is issued, the government records an encumbrance to reserve the budgetary authority. The entry is Debit Encumbrances, Credit Budgetary Fund Balance - Reserve for Encumbrances.

Common mistakes

Recording expenditure at PO stage.

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