B5 M2 - Encumbrances Flashcards
What is an encumbrance for governmental accounting purpose?
An Encumbrance is a commitment to purchase that should be considered in the FS presentation. It’s when a government entity (fund) issues a PO for supplies, etc. but has yet to receive the item.
What are the journal entries related to encumbrance?
When PO is issued:
Dr. Encumbrances (estimated)
Cr. Budgetary control
When supplies/invoice were received (PO is satisfied):
Dr. Budgetary control
Cr. Encumbrance (estimated)
To record actual:
Dr. Expenditures (actual)
Cr. Vouchers Payable or cash (actual)
Unused PO @YE:
Dr. Unassigned fund balance
Cr. Committed/Assigned Fund Balance
What is reciprocal transfers? And how does it differ from Non reciprocal transfers
Reciprocal transfers are payments for services provided and used, and loans.
Remember “exchange” - money is going in a circle. ex. you’re providing a service or using that service and providing funds for that service
Non reciprocal tranfers - no quid pro quo. It’s a one time transfer and the transferor does not get anything back.
What are types of Fund balances (NUCAR)
N - Nonspendable (can’t be spent or are legally/contractually required to hold) - includes inventories
U - Unassigned (Spendable and are neither restricted, committed nor assigned)
C - Committed (Used for specific purpose imposed “internally” by formal action of the govt’s highest level of decision making)
A - Assigned (Constrained by Gov’t’s intent to be used for specific purposes but are neither restricted or committed - “might become committed or restricted, more like govt thought about it but nothing final”)
R - Restricted (restricted by external sources such as creditors, contributors, constitutional provisions or enabling legislations)
What is a Quasi-external transaction?
Routine service charges for utilities is one example of a quasi-external transaction
Transfers between funds do not generally give rise to operating expenditures and revenues. However, an exception is made for quasi-external transactions (one in which the governmental fund acquires a good or service that could have been purchased from an unrelated business enterprise)
