When should Construction Expenditures be debited for a progress bill approved for payment?

• A. On the date the bill is submitted for payment.
• B. When the bill is approved for payment.
• C. When cash is paid to the vendor.
• D. At year-end when the project is completed.

Answer: (B)

In government accounting, expenditures are recognized when the government has incurred the obligation to pay for work done. A progress bill that is approved for payment creates that obligation and reflects the cost currently incurred for the project. Therefore, the proper moment to debit Construction Expenditures is when the bill is approved for payment. At that point, you record the expenditure and a corresponding liability (such as Accounts Payable or Contracts Payable).

Submittal of the bill for payment does not yet incur the liability, and paying cash later would simply settle the liability and cash, not create the expenditure. Waiting until year-end or waiting until project completion would misstate the period’s costs because the expenditure is incurred as work progresses and the bill is approved.