Which statement about the Encumbrances Outstanding account is accurate when a purchase order is approved?

Which statement about the Encumbrances Outstanding account is accurate when a purchase order is approved?

• A. It is credited
• B. It is debited
• C. It is disregarded
• D. It is closed

Answer: (A)

When a purchase order is approved, it creates a binding obligation and reserves part of the available appropriations. The Encumbrances Outstanding account tracks these commitments and typically carries a credit balance as commitments increase. Therefore, recording a new encumbrance by approving a purchase order is shown by crediting the Encumbrances Outstanding account. This reflects the rise in outstanding encumbrances against the budget. As the goods are received or the obligation is liquidated, you would then reduce the outstanding encumbrance (usually by debiting this account), but at PO approval the action is to credit it.

When a purchase order is approved, it creates a binding obligation and reserves part of the available appropriations. The Encumbrances Outstanding account tracks these commitments and typically carries a credit balance as commitments increase. Therefore, recording a new encumbrance by approving a purchase order is shown by crediting the Encumbrances Outstanding account. This reflects the rise in outstanding encumbrances against the budget. As the goods are received or the obligation is liquidated, you would then reduce the outstanding encumbrance (usually by debiting this account), but at PO approval the action is to credit it.