Assume encumbrances do not expire at year-end. $15,000 was encumbered during the prior year for a computer and the actual cost of the computer in the current year is $12,000. How does this affect unreserved fund balance?

Question

Quizplus · Accepted Answer

The encumbrance of $15,000 was made in the prior year, so it did not affect the unreserved fund balance in the current year. However, since the actual cost of the computer in the current year is only $12,000, the difference of $3,000 will be released from the encumbrance and will increase the unreserved fund balance. Therefore, in the current year, the unreserved fund balance will increase by $3,000 and in the previous year, it will decrease by $15,000 (due to the initial encumbrance). Option B correctly reflects this impact.

Assume Encumbrances Do Not Expire at Year-End