A city had placed a purchase order for $25,000 for street maintenance supplies; the order allowed for price increases up to 5 percent of the order. The vendor shipped the supplies and billed the city for a total of $26,000. The city inspected the shipment and approved the invoice for $26,000. What budgetary journal entry should the city make when the supplies are received?

Question

Quizplus · Accepted Answer

The original encumbrance was for $25,000, which resulted in a debit to Encumbrances for $25,000 and a credit to Budgetary fund balance reserved for encumbrance for $25,000. When the supplies are received, the entry needs to be reversed for the same amount that was originally encumbered.

A City Had Placed a Purchase Order for $25,000 for Street