ExpertMedium1 markMultiple Choice
CPA · Question 48 · Area III: State & Local Governments
A city issues a purchase order for $10,000 of supplies. What journal entry is made in the General Fund?
A city issues a purchase order for $10,000 of supplies. What journal entry is made in the General Fund?
Answer options:
A.
Debit Encumbrances; Credit Budgetary Fund Balance - Reserve for Encumbrances.
B.
Debit Expenditures; Credit Vouchers Payable.
C.
Debit Supplies; Credit Accounts Payable.
D.
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
A
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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