On July 25,2008,the city of Pullman,which reports on a calendar-year basis,ordered five police cars at an estimated cost of $200,000.On August 26,2008,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 Reserved for Encumbrances for $197,000.
B)Debit Encumbrances for $200,000.
C)Debit Expenditures for $197,000.
D)Credit Budgetary Fund Balance Reserved for Expenditures for $200,000.

Question

Quizplus · Accepted Answer

When the police cars were received, Pullman should debit Expenditures for $197,000, which represents the actual amount paid for the police cars. The encumbrance of $200,000 was recorded when the cars were ordered and is no longer needed since the actual cost was less than estimated. Therefore, neither option A nor B is correct. Option D is also incorrect because it suggests crediting Budgetary Fund Balance Reserved for Expenditures for $200,000, which would overstate the amount available for expenditures.

On July 25,2008,the City of Pullman,which Reports on a Calendar-Year