When equipment is ordered by a department, the General Fund recording should debit which budgetary account?

• A. Encumbrances 6,000; Appropriations 6,000
• B. Encumbrances 6,000; Encumbrances Outstanding 6,000
• C. Encumbrances 6,000; Appropriations 6,000
• D. Expenditures 6,000; Encumbrances 6,000

Answer: (B)

When you order equipment, funds are being committed but not yet spent, so you’re recording a budgetary encumbrance rather than an actual expenditure. The proper entry increases the encumbrance account to reflect the commitment and also establishes the outstanding encumbrance as the offset for the committed funds. Therefore you debit Encumbrances for the amount and credit Encumbrances Outstanding for the same amount. This shows that part of the appropriation is reserved for the order and is not available for other uses. At this stage, expenditures and direct appropriations aren’t adjusted; they’re only affected later when the goods are received and the obligation becomes an actual expenditure.