On July 25,20X8,the city of Pullman,which reports on a calendar-year basis,ordered five police cars at an estimated cost of $200,000.On August 26,20X8,the police cars were received,and the actual cost amounted to $197,000.Pullman encumbered the appropriation for police cars in its general fund when the cars were ordered.When the police cars were received,the general fund of Pullman should:
A)Credit Budgetary Fund Balance Assigned for Encumbrances for $197,000.
B)Debit Encumbrances for $200,000.
C)Debit Expenditures for $197,000.
D)Credit Budgetary Fund Balance Assigned for Expenditures for $200,000.

Question

Quizplus · Accepted Answer

When the police cars are received, the general fund of Pullman should debit Expenditures for the actual cost of $197,000. This represents the actual outflow of resources from the fund. The Encumbrances account should be closed out because the goods have been received and the liability has been extinguished. Therefore, the encumbrance should be reversed by debiting the account and crediting Budgetary Fund Balance Assigned for Encumbrances in the amount of $200,000 (original amount of encumbrance). The remaining $3,000 ($200,000 - $197,000) in the encumbrance account is released and no longer needs to be reserved.

On July 25,20X8,the City of Pullman,which Reports on a Calendar-Year