Advanced Financial Accounting
Advanced Financial Accounting
12th Edition
ISBN: 9781259916977
Author: Christensen, Theodore E., COTTRELL, David M., Budd, Cassy
Publisher: Mcgraw-hill Education,
Question
Chapter 17, Problem 17.5E

a

To determine

Concept introduction:

Accounting for expenditures: The governmental funds use a variety of controls over expenditures to ensure that the legal restrictions are followed. The expenditure process in governmental accounting comprises the following sequential order, appropriation, encumbrance, expenditure, and disbursement. The budgets are prepared for target expenditure and an encumbrance is a reservation for that budgetary appropriation and these encumbrances will be recognized at the time of placing the order for goods or services. The main aim of encumbrance is to see that expenditures are within the budgeted appropriations.

Requirement 1

The entries related to encumbrances assuming that the city has a policy that outstanding encumbrance’s lapse at the end.

a

Expert Solution
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Explanation of Solution

    DateParticularsDebit $Credit $
    11/03/X2Encumbrance21,000
    Budgetary fund balance − reserved for encumbrances21,000
    (New computer equipment ordered)
    12/31/X2Budgetary fund balance − reserved for encumbrances21,000
    Encumbrances21,000
    (Closing of budgeted encumbrances on non-receipt of computer equipment)
    Fund balance − unreserved21,000
    Fund balance − reserved for encumbrance21,000
    (Encumbrance reserves transferred to unreserved fund balance account)
    01/01/X3Fund Balance − reserved for encumbrances 21,000
    Fund balance − unreserved21,000
    (Outstanding encumbrance on computer equipment accepted)
    Encumbrances21,000
    Budgetary fund balance − reserved for encumbrances21,000
    (Renewal of prior year encumbrances)
    01/18/X3Budgetary fund balance − reserved for encumbrances21,000
    Encumbrance21,000
    (Budgetary reserve for goods received removed)
    Expenditures21,800
    Vouchers payable21,800
    (Actual cost of goods received recognized)
    12/31/X3Fund balance − unreserved21,800
    Expenditures21,800
    (Closure of expenditure account for the year)
  1. Encumbrance recorded at the order of equipment, the budgeted amount will be debited to the encumbrance account and budgetary provision is created in the budgetary fund account.
  2. At the end of the year encumbrance is reversed due to non-receipt of equipment, and reserved fund for encumbrance transferred to the unreserved fund balance at the end of the year.
  3. Outstanding encumbrances of the previous year accepted in the current year and debited to encumbrance account.
  4. Budgetary reserve removed on receipt of goods, and expenditure on receipt of goods recognized with an actual cost of $21,800.
  5. Expenditure account closed by payment from the unreserved fund balance account.

b

To determine

Concept introduction:

Governmental accounting: Generally, the fund-based system of accounting is used in governmental entities but in some of the funds a modified accrual accounting method is used. All the resources collected and all the expenditures that have made to fulfill societal needs must be appropriately recognized. The governmental accounting system must be in accordance with accepted legal and contractual provisions. A system of comprehensive budgetary accounting is used under governmental accounting that helps in the establishment of the significant control mechanism and also useful for comparison of actuals against budgeted amounts.

Requirement 2

The entries related to encumbrances assuming that the city has a policy that outstanding encumbrance’s are non-lapsing at the end of the year.

b

Expert Solution
Check Mark

Explanation of Solution

    DateParticularsDebit $Credit $
    11/03/X2Encumbrance21,000
    Budgetary fund balance − reserved for encumbrances21,000
    (New computer equipment ordered)
    12/31/X2Budgetary fund balance − reserved for encumbrances21,000
    Encumbrances21,000
    (Closing of budgeted encumbrances on non-receipt of computer equipment)
    Fund balance − unreserved21,000
    Fund balance − reserved for encumbrance21,000
    (Encumbrance reserves transferred to unreserved fund balance account)
    01/01/X3Fund Balance − reserved for encumbrances 21,000
    Fund balance − reserved for encumbrances 20X221,000
    (Outstanding encumbrance on computer equipment reclassified)
    01/18/X3Encumbrances -20X221,000
    Encumbrances -20X3800
    Vouchers payable21,800
    (Actual expenditure for goods received recognized)
    12/31/X3Fund balance − reserved for encumbrance 20X221,000
    Expenditure 20X221,000
    (Prior year encumbrance expenditure paid and closed)
    Fund balance − Unreserved800
    Expenditure 20X3800
    (Current year expenditure account closed)
  1. Encumbrance recorded at the order of equipment, the budgeted amount will be debited to the encumbrance account and budgetary provision is created in the budgetary fund account.
  2. At the end of the year encumbrance is reversed due to non-receipt of equipment, and reserved fund for encumbrance transferred to the unreserved fund balance at the end of the year.
  3. Encumbrance lapsed in the prior year reclassified in the current year and credited to fund balance reserved for the encumbrance account.
  4. Actual expenditure on receipt of goods recognized.
  5. Encumbrances of the previous year paid and closed from by debiting reserve for encumbrance account and additional expenditure on encumbrance transferred to unreserved funds balance account.

c

To determine

Concept introduction:

Governmental accounting: Generally, the fund-based system of accounting is used in Governmental entities but in some of the funds a modified accrual accounting method is used. All the resources collected and all the expenditures that have made to fulfill societal needs must be appropriately recognized. The governmental accounting system must be in accordance with accepted legal and contractual provisions. a system of comprehensive budgetary accounting is used under governmental accounting that helps in the establishment of the significant control mechanism and also useful for comparison of actuals against budgeted amounts.

Requirement 3

The entries required on January 1 20X3 to cancel the encumbrance reserve for the equipment ordered on November 3, 20X2

c

Expert Solution
Check Mark

Explanation of Solution

    DateParticularsDebit $Credit $
    1/1/X3Fund balance- Reserved for encumbrances21,000
    Fund balance − Unreserved21,000
    (Outstanding encumbrances cancelled)
  • Encumbrance on November 3, 20X2 has been cancelled on January 1, 20X3.
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    Chapter 17 Solutions

    Advanced Financial Accounting

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