A city that uses encumbrance accounting places a purchase order for three fire trucks at a cost of $100,000 each,specifying that two are to be delivered in March and one in August.The vendor delivers the first two trucks,and sends an invoice for $200,000.How should the city handle the encumbrance accounting when it prepares the $200,000 voucher to pay for the first two trucks?
A)it should make no encumbrance entry until all three trucks have been received
B)it should reduce encumbrances by $100,000
C)it should reduce encumbrances by $200,000
D)it should reduce encumbrances by $300,000

Question

Quizplus · Accepted Answer

Encumbrance accounting involves setting aside funds for specific purposes. When the city prepares the $200,000 voucher for the first two trucks, it should reduce the encumbrances by $200,000, reflecting the commitment of funds towards the actual purchase, leaving the remaining encumbrance for the third truck.

A City That Uses Encumbrance Accounting Places a Purchase Order