Question

The City of Island Grove uses encumbrance accounting and its fiscal year ends on June 30. On May 6, a purchase order was approved and issued for supplies in the amount of $6,000. Island Grove received these supplies on June 2, and the $6,000 invoice was approved for payment. What General Fund journal entry or entries should Island Grove make on June 2, upon receipt of the supplies and approval of the invoice?

Transaction General Journal Debit Credit
A) Encumbrances Outstanding 6,000
Encumbrances 6,000

Expenditures 6,000
Vouchers Payable 6,000

B) Encumbrances 6,000
Appropriations 6,000

C) Supplies 6,000
Vouchers Payable 6,000

D) Appropriations 6,000
Encumbrances 6,000

Supplies 6,000
Vouchers Payable 6,000

Answer 1

The correct journal entry on June 2 for Island Grove, using encumbrance accounting upon receipt of supplies, is to debit Encumbrances Outstanding and credit Encumbrances for $6,000, then debit Expenditures and credit Vouchers Payable for $6,000.

The appropriate journal entry for Island Grove upon the receipt of supplies and approval of the $6,000 invoice, while using encumbrance accounting, would involve reversing the encumbrance and recording the expenditure. Therefore, the correct entry would be:

• Debit: Encumbrances Outstanding $6,000
• Credit: Encumbrances $6,000
• Debit: Expenditures $6,000
• Credit: Vouchers Payable $6,000

This sequence first removes the encumbrance, then records the actual expenditure for the supplies received. This is a standard process in governmental accounting to distinguish between commitments to spend and actual spending in the General Fund.