Question

1. The purpose of an encumbrance is to:

a.	amend the budgeted appropriations.
b.	assist the administration to avoid overspending and plan for payment of expected liabilities.
c.	record liabilities that will be paid beyond the period where funds are currently available.
d.	None of the above

2. After the closing entries have been journalized and posted, but prior to the next accounting period, which of the following accounts would have a balance?

a.	Fund Balance--Unassigned
b.	Appropriations
c.	Other Financing Uses
d.	Revenues

Answer 1

Hello there :)

1. The correct option is B.

Reason - Encumbrance can be a contingent liability, contract, purchase order, payroll commitment, tax payable, or legal penalty that is chargeable to an account. It ceases to be an encumbrance when paid-out or when the actual liability amount is determined and recorded as an expense. With General Ledger you can record pre-expenditures commonly known as encumbrances. The primary purpose of tracking encumbrances is to avoid overspending a budget. Encumbrances can also be used to predict cash outflow and as a general planning tool.

2. The correct option is A.

Reason - The fund balances assigned or unassigned have a balance at the end of the period and are recorded on the liabilities side of the balance sheet. Appropriations, other financing uses, revenues don't have a balance because the same are closed in the income statement.

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