Question

At the end of fiscal year 2022, Carson City had outstanding encumbrances of $15,000. Although the city follows a policy of allowing outstanding encumbrances to lapse, it plans to honor the related purchase orders in fiscal year 2023. How should the city report the existence of the outstanding encumbrances in the financial statements if the encumbrances do not relate to a resource classified as restricted or committed?

a. It should be reported as Non spendable fund balance.
b. It should be reported as Assigned fund balance.
c. It should be reported as Unassigned fund balance.
d. It should be reported as Reserved for Encumbrances.

Answer 1

The outstanding encumbrances should be reported as Reserved for Encumbrances in the financial statements if they do not relate to a restricted or committed resource.

Step-by-step explanation:

The outstanding encumbrances of $15,000 should be reported as Reserved for Encumbrances in the financial statements if the encumbrances do not relate to a resource classified as restricted or committed. Reserved fund balance represents funds that are legally set aside for a specific purpose but are not classified as restricted or committed. The city plans to honor the purchase orders in fiscal year 2023, so it is appropriate to reserve the fund