Question

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

A) d-Encumbrances Outstanding 6,000
c- Encumbrances 6,000
d-Expenditures 6,000
c- Vouchers Payable 6,000

B)d- Encumbrances 6,000
c- Appropriations 6,000
d- Fund Balance—Unassigned 6,000
c- Vouchers Payable 6,000

C)d- Supplies 6,000
c- Vouchers Payable 6,000

D) d-Appropriations 6,000
c- Encumbrances 6,000
d- Supplies 6,000
c- Vouchers Payable 6,000

Answer 1

Option A is the correct journal entry for the City of Athens, which involves debiting Encumbrances Outstanding and Expenditures, and crediting Encumbrances and Vouchers Payable.

Step-by-step explanation:

The correct General Fund journal entry that the City of Athens should make on June 2, upon receipt of the supplies and approval of the invoice under encumbrance accounting is option A:

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

This entry reverses the original encumbrance when the purchase order was issued and records the actual expenditure now that the supplies have been received and the invoice approved for payment. The encumbrance account is decreased because the commitment to purchase has now been fulfilled, and the expenditure is recognized as the goods have been received. The liability towards the supplier is recorded in the vouchers payable account.