When a purchase order is issued under a Capital Projects fund, how should the transaction be recorded?

Question

Quizplus · Accepted Answer

When a purchase order is issued under a Capital Projects fund, it is recorded as an encumbrance rather than as an expenditure because the expenditure has not yet been incurred. Therefore, the best choice is to debit Encumbrances Control (which represents the amount of outstanding purchase orders) and credit Reserve for encumbrances (which is a memorandum account that indicates the amount of budgetary resources that have been committed). Option A is incorrect because it should debit Encumbrances Control and credit Reserve for Encumbrances. Option C is incorrect because expenditures are recorded when goods or services are received or when payment is made. Option D is incorrect because Reserve for encumbrances is used to record the amount of budgetary resources that have been committed, not the actual cost of the purchase.

When a Purchase Order Is Issued Under a Capital Projects