Concept explainers
a
Concept introduction:
Expenditures for inventory: Governmental units usually maintain a small amount of inventory in office supplies. They are two methods using which expenditures of inventory accounted for. The purchase method recognizes entire expenditure for inventory in the period when supplies are acquired. Only the amount of inventory consumed will be recognized in the case of the consumption method.
The necessary entries assuming G town uses consumption method of accounting for inventories.
a
Explanation of Solution
Consumption method
Date | Particulars | Debit $ | Credit $ |
1. Entry for purchase of supplies | |||
8/8/20X2 | Expenditures | 3,600 | |
Vouchers payable | 3,600 | ||
(Acquired inventory of supplies) | |||
2. Entry on September 30 | |||
9/30/20X2 | Inventory of supplies | 2,800 | |
Expenditures | 2,800 | ||
(Ending inventory recognized) | |||
Closing entry for Inventory of supplies | |||
Fund balance − Unreserved | 2,800 | ||
Fund balance − Reserved for inventories | 2,800 | ||
(Establish fund reserve for ending inventory) | |||
Fund balance − Unreserved | 800 | ||
Expenditures | 800 | ||
(Closing expenditures account) | |||
9/30/20X3 | 3. Entry when supplies used during the year | ||
Expenditures | 2,800 | ||
Inventory of supplies | 2,800 | ||
(Expenditure for inventory consumed during the year recognized) | |||
Fund balance − reserved for inventories | 2,800 | ||
Fund balance − Unreserved | 2,800 | ||
(Fund balance reserved for inventory removed) | |||
Fund balance − unreserved | 2,800 | ||
Expenditures | 2,800 | ||
(Expenditure account closed) |
- Purchase of inventory recognized
- Unused inventory recognized
- Unused inventory value transferred to fund balance unreserved account
- Expenditure account closed by crediting expenditure account
- Purchase of inventory recognized
- Fund balance reserved for inventory removed
- Expenditure account closed and transferred to fund balance unreserved account
Closing entries required on September 30, 20X2
Entries when supplies used
b
Concept introduction:
Expenditures for inventory: Governmental units usually maintain a small amount of inventory in office supplies. They are two methods using which expenditures of inventory accounted for. The purchase method recognizes entire expenditure for inventory in the period when supplies are acquired. Only the amount of inventory consumed will be recognized in the case of the consumption method.
The entries assuming purchase method of accounting for inventory
b
Explanation of Solution
Date | Particulars | Debit $ | Credit $ |
1. Purchase of supply | |||
8/8/20X2 | Expenditures | 3,600 | |
Vouchers payable | 3,600 | ||
(Inventory of supplies acquire) | |||
2. Entries at the end of 20X2 | |||
9/30/20X2 | Inventory of supplies | 2,800 | |
Fund balance − reserved for inventory | 2,800 | ||
(Ending inventory of supplies recognized) | |||
Fund balance − Unreserved | 3,600 | ||
Expenditure | 3,600 | ||
(Expenditure account closed for the year) | |||
3. Entry at the end of 20X3 | |||
9/30/20X3 | Fund balance − Reserved for inventories | 2,800 | |
Inventory of supplies | 2,800 | ||
(Removal of fund balance reserved for inventories consumed) |
- Under the purchase method the entire purchase of supply is recorded by debiting the expenditure account and crediting the voucher payable account
- At the end of the year unused inventory of supply transferred to the fund balance reserved for the inventory account
- Expenditure account closed by crediting expenditure account and debit Fund balance unreserved
- In 20X3 fund balance reserved for inventory is reversed.
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Chapter 17 Solutions
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