At the end of 2027 the General Fund had encumbrances of $500 that remained open into 2028. In 2028, the encumbered goods were received at an invoiced cost of $520. What is recorded as the 2028 expenditure?

• A. $20
• B. $500
• C. $520
• D. $0

Answer: (A)

In governmental fund accounting, an encumbrance is a reserved portion of the budget set aside for a.purchase that has not yet been received. Encumbrances are not expenditures. When the goods are actually received, the expenditure is recorded for the portion funded by the current year resources beyond what was already encumbered.

Here, there was an encumbrance of 500 carried forward into 2028. The goods are received in 2028 at a total invoiced cost of 520. The 500 encumbered amount covers part of the cost, leaving only 20 as a current-year expenditure. The remaining 500 simply reduces the encumbrance rather than being new expenditure, so the 2028 expenditure is 20.