A government department uses an encumbrance system to keep tabs on spending. On July 1, 2013, a department employee issued a purchase order for cleaning supplies estimated to cost $500. The supplies were delivered promptly, and invoiced at $450. What would be the balance in the encumbrances account after payment of the invoice?

Question

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The encumbrance account is reduced by the estimated amount ($500) when the purchase order is issued and then adjusted to the actual invoice amount ($450) upon delivery. After payment, the encumbrance is cleared, resulting in a nil balance.

A Government Department Uses an Encumbrance System to Keep Tabs