Question

Tom City received equipment that had been approved for purchase (i.e., purchase order) by the General fund earlier that same fiscal year. Payment is due in 30 days. What effect will receipt of the equipment have on the following accounts?

Encumbrances Expenditures
a. Decrease Increase
b. Decrease No effect
c. No effect Increase
d. No Effect No effect

Answer 1

Receiving equipment decreases the Encumbrances account and increases the Expenditures account in governmental accounting when the equipment had a prior purchase order.

Step-by-step explanation:

The student asked about the effect of receiving equipment on the Encumbrances and Expenditures accounts in governmental accounting. When equipment is received that had a prior purchase order, the Encumbrances account is decreased because the amount previously set aside for the purchase is no longer needed to obligate. The Expenditures account is increased to recognize the actual outflow of economic resources. Therefore, the correct answer is: Encumbrances Decrease, Expenditures Increase.