Question

To keep track of purchase orders and contracts outstanding, (debit/credit) _____ the Fund Balance - Reserve for Encumbrances account and (debit/credit) ______ the Encumbrances Control account.

Answer 1

To track outstanding purchase orders and contracts, debit the Encumbrances Control and credit the Fund Balance - Reserve for Encumbrances accounts, reserving funds for future expenses.

Step-by-step explanation:

To keep track of purchase orders and contracts outstanding, you should debit the Encumbrances Control account and credit the Fund Balance - Reserve for Encumbrances account. When you establish an encumbrance, you are setting aside funds for a future expense, which means you are reserving a part of the fund balance to cover that forthcoming obligation. The Encumbrances Control account, which is a budgetary account representing commitments, is debited to record the encumbrances, while the Fund Balance - Reserve for Encumbrances is credited.