January 2027, supplies ordered in the previous year encumbered at 2,000 and received at 2,200. The entry to record this transaction will require a debit to Expenditures—2027 in the amount of 200.

• A. Expenditures—2027 200
• B. Encumbrances Outstanding 200
• C. Expenditures 200
• D. Budgetary Fund Balance 200

Answer: (A)

In governmental funds, expenditures are recognized in the period when goods are received and the portion of the cost that exceeds any previously encumbered amount is the current-year expense. Encumbrances are reservations of spendable funds, not expenditures themselves, so they don’t become a current-year expense unless the actual cost exceeds what was encumbered.

Here, supplies were encumbered last year for 2,000 but were received in the current year at a total cost of 2,200. The amount that truly represents a current-year cost is the portion above the existing encumbrance, which is 200. Therefore, the entry records the incremental current-year expenditure by debiting Expenditures—2027 for 200. The remaining 2,000 is the amount satisfied from the prior-year encumbrance, which is cleared through the encumbrances process and does not create an additional current-year expenditure.

That’s why the correct debit is to Expenditures—2027 for 200; other options would misstate the nature of encumbrances versus expenditures or the year to which the expenditure belongs.