[salena786]

Hi guys,

I really appreciate all the help I’ve gotten. I am coming to the end with FAR on chapter 8, and am having a little trouble understanding the concepts behind encumbrances and appropriations.

Budget journal entry is –> Dr. Est Rev Cr. Appropriations (budget is either dr or cr)

Encumbrances journal entry is –> Dr. Encumbrances Cr. Budgetary Control.; Dr. Expenditures Cr. Payables

I’m not sure what these accounts are, and why these journal entries use them. If anyone could explain I’d really appreciate it.

Thanks a lot!

[Anonymous]

You book the appropriation with the budget, as mentioned, as to book the amount of monies the entity is allowed to expend for the fiscal year.

An encumbrance is a control account used to book a purchase, usually in the form of a purchase order. I.e. the governmental entity has issued a purchase order to purchase the good/service but hasn't actually expended the money for the purchase yet.

When the entity pays for the good/service the encumbrance is negated and the expenditure is booked.

The encumbrance control is used in sorts, as a way for the entity to know the amount of appropriation they have available for expenditure. I.e. when you increase the encumbrances, your available appropriations decreases.

So appropriations available for expenditure = beginning appropriation – expenditures – amount in encumbrances control account.

I'm rusty on the subject but I think that's a general run down.

[salena786]

That helps clear it up a lot, thank you so much!

[wr8280]

These are just control entries as to not overstep the budget. Remember, people can go to jail for not sticking with a statutory budget so it is important. In normal financial accounting, purchase orders are executory and not booked– only disclosed if applicable.

FAR- 82
REG- 93
AUD- 89
BEC- 88

You are smarter, more focused, and more brilliant than you give yourself credit for. Believe in yourself and truly know in your heart that you can do it.

[salena786]

Thank you wr8280;

I am still a little confused about encumbrances outstanding purchase orders. According to becker if the purchase orders are still outstanding then we will use our appropriations to debit

Dr. Budgetary Control Cr. Encumbrances- Committed

Where does budgetary control/appropriations come from, and what does it mean for the encumbrances to be committed? I'm assuming an outstanding purchase order is when they don't receive the order at year end?

[onlydipsy]

Hi I'm glad to know someone has the same confusion as me. Can I add a few questions based on the author's questions?

I'm more clear with the Dr. Encumbrances Cr. Budgetary Control J/E, and I understand that whatever J/Es are made to record the budget, I have to reverse exactly the same J/E at the end of the year to close budget account.

But I still don't understand the other J/E:

Dr. Estimated revenue

Cr. Appropriations

Plug: Budgetary Control

Is estimated revenue the taxes the entity expects to receive in the near future? then what is “Appropriations”? Are they the monies given from an upper level government entity and allowed to use? I feel that both these two accounts mean incoming available monies for the entity but then why should we need to record the difference as budgetary control? What does the difference between the two accounts indicate?

Another question is:

Under what circumstances should I use this J/E?

Dr. Estimated revenue

Cr. Appropriations

Plug: Budgetary control

Is there a circumstance that I should record both the J/E above and the other Dr. Encumbrances-> Cr. Budgetary control J/E? And what amounts should I use then?

Thanks in advance!

[refinnej]

https://sites.google.com/site/farnotes/gas-34/journal-entries–fund-based-vs-government-wide

AUD - 84
BEC - 80
FAR - 76
REG - 80

-J

BEC - PASSED
REG - PASSED
AUD - PASSED
FAR - Not scheduled yet

[Author]

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