A city orders a new police car for $30,000. When the car is delivered, the invoice is for $31,000. What is the journal entry in the General Fund upon delivery?

Answer options:

Dr. Expenditure $31,000; Cr. Cash $31,000

Dr. Budgetary Fund Balance - Reserved for Encumbrances $30,000; Cr. Encumbrances $30,000 AND Dr. Expenditures $31,000; Cr. Vouchers Payable $31,000

Dr. Encumbrances $30,000; Cr. Budgetary Fund Balance $30,000 AND Dr. Expenditures $31,000; Cr. Cash $31,000

Dr. Equipment $31,000; Cr. Cash $31,000

How to approach this question

Two steps: 1. Kill the Encumbrance (reverse original entry). 2. Book the Expenditure (actual invoice price).

Full Answer

B.Dr. Budgetary Fund Balance - Reserved for Encumbrances $30,000; Cr. Encumbrances $30,000 AND Dr. Expenditures $31,000; Cr. Vouchers Payable $31,000✓ Correct

When the item is received, the encumbrance is reversed for the amount originally recorded ($30,000). Then, the expenditure is recorded for the actual invoice amount ($31,000). Note: General Fund records 'Expenditure', not 'Equipment'.

Common mistakes

Reversing the encumbrance for $31,000; recording an asset.

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