The transportation fleet department for a provincial government uses an encumbrance system. On October 15, 20X1, the department manager issued a purchase order for $4,000 for snow tires. The tires were delivered on October 31, 20X1, with an invoice for $3,800. What should be recorded on October 15, 20X1?

Question

Quizplus · Accepted Answer

The encumbrance system records a commitment to spend funds, so the initial entry would be an encumbrance for the full amount of the purchase order, which is $4,000. This is because the department manager has already committed to spending that much on the snow tires. When the invoice arrives, the accounts payable can be updated with the actual amount due, which is $3,800 in this case. Therefore, the accounts payable would be recorded when the invoice is received, and the initial entry would be an encumbrance for the full amount of the purchase order.

The Transportation Fleet Department for a Provincial Government Uses an Encumbrance