[yhe1223]

During its fiscal year ended June 30, Cliff City issued purchase orders totaling $5,000,000, which were properly

charged to encumbrances at that time. Cliff received goods and related invoices at the encumbered amounts

totaling $4,500,000 before year end. The remaining goods of $500,000 were not received until after year end.

Cliff paid $4,200,000 of the invoices received during the year. What amount of Cliff’s encumbrances were

outstanding at June 30?

$0

$300,000

$500,000

$800,000

The answer is $500.000, my answer is $0, I thought you will reverse the total encumbrance at year end, but the answer is

The amount of Cliff’s encumbrances that were outstanding at June 30 is the amount of purchase orders issued,

less the encumbered value of expenditures. The amount of Cliff’s encumbrances that were outstanding at June 30

is $500,000 (i.e., $5,000,000 – $4,500,000).

When the purchase orders were issued, the following entry was made:

Encumbrances control (estimated cost) 5,000,000

Reserve for encumbrances 5,000,000

Upon receipt of the goods and related invoices, the following entries were made:

Reserve for encumbrances 4,500,000

Encumbrances control 4,500,000

(reverse original entry)

Expenditures (actual cost) 4,200,000

Vouchers payable 4,200,000

when receipt of the goods and related invoices, why not reverse the total encumbered amount at the beginning ?

Step by step
BEC 75 2013/11
FAR 76 2014/10
AUD 87 2015/1
REG 83 2015/3

[yhe1223]

Please help ~~

Step by step
BEC 75 2013/11
FAR 76 2014/10
AUD 87 2015/1
REG 83 2015/3

[Anonymous]

Yhe1223, what version are you using for your FAR? It seems like that's 2012 version. Reserve for encumbrances is no longer used, but it is now Budgetary Control instead.

You're right about reversing the encumbrances account by using the actual expenditure recorded though.

[Anonymous]

The question is not clear if the $4,500,000 in invoices received were for all the goods, or just the goods received. However, typically in business, invoices either accompany or follow the goods. Assuming the the $500,000 in unreceived goods have not been invoiced, then the encumbrance account would still have the $500,000. Not the best approach to this question, but I certainly hope it helps.

[fuyuki]

Hi, sorry to bring the post from the few months ago.

I'm currently studying the governmental accounting part of Becker and Wiley (both 2014 version). I see they use different journal entry to account for encumbrance. For example:

Wiley still use this for encumbrance:

Debit Encumbrance

Credit Reserved for Encumbrance

Becker:

Debit Encumbrance

Credit Budgetary Control

It's pretty confusing when I'm trying to work the homework questions on both becker and wiley when they use different account. Which one the correct account to use for crediting encumbrance outstanding.

Thanks,

[jslo123]

Budgetary control. Reserve for Encumbrance is old school.

AUD - 89
BEC - 92
FAR - 90
REG - 79

LETZ GET IT

[monikernc]

the original post is from 2014.

AUD - 93
BEC - 82
FAR - 76
REG - 88

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