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Encumbrance Accounting: CPA FAR Governmental Accounting - YouTube
Channel: SuperfastCPA
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so in this video we're gonna do a quick
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example that will walk you through how
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encumbrance accounting works for the
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government
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accounting section on the far exam so
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just by going through this one simple
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problem this should make this a lot
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easier for you to understand the 2020
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general fund budget for Corona County
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included a hundred thousand budgeted for
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facemasks for county employees on
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November 1st 2020 her ona had the
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following balances related to the
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facemasks budget they had appropriations
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of a hundred thousand encumbrances of
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twenty thousand expenditures of seventy
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thousand and vouchers payable for five
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thousand one of the county employees has
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asked for more face masks for their
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department so you need to review the
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information related to the budget above
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to determine if there are funds
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available from the budget for additional
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face masks so down here this is the
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description of what you're trying to
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figure out we need to figure out the
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amount and if the budget is available or
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overspent for the rationale on this you
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think of appropriations as the amount
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that has been set aside for a purpose at
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the beginning of the budgeting process
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so appropriations is essentially if we
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go back to this it's essentially the
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entire amount that was budgeted at the
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beginning of the budgeting process
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encumbrances is the amount from the
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appropriations that are currently tied
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up in an actual purchase so when a
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purchase order has been issued that
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amount will be listed as an encumbrance
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so here there are currently $20,000
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worth of encumbrances that are going
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against this appropriations amount of a
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hundred thousand expenditures on the
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other hand these are the amounts that
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have been filled meaning the transaction
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is basically over so there was an
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encumbrance and then the goods were
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received so the encumbrance was reversed
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back out and then it was recorded as an
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expenditure so it's the amount that has
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actually been spent so when I purchased
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when the when the purchase order from up
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here has actually been filled then the
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amount of the encumbrance is reversed
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out and that amount becomes an
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expenditure and then vouchers payable is
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just the government term for accounts
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payable so when an
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spencer is recorded there will be a
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voucher payable recorded at the same
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amount which is basically just saying
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this is what we still owe for these
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goods that we received in the example
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above having this amount listed as
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vouchers payable that just means that on
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this date on November 1st this is the
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amount of vouchers payable that is still
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outstanding in other words it's already
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been included in this expenditures
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amount so we wouldn't use this to
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calculate what amount of the budget is
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still left over so the calculation in
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this example is you have the
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Appropriations or the budgeted amount
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and we would subtract from that the
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expenditures those are the transactions
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that have have been fulfilled purchase
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order was made goods were received the
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purchase order was filled and it was
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recorded as an expenditure so in this
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encumbrance amount we would subtract
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this as well because there's currently
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20,000 of our budget tied up in
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outstanding purchase order so the
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purchase orders have been issued but
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they haven't been filled so one hundred
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thousand - seventy thousand - twenty
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thousand leaves us with ten thousand
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dollars of budget available so that is
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what the amount would be ten thousand of
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available budget now down here if the
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expenditures let's say they were 90
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thousand and there were encumbrances of
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twenty thousand then the budget would be
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overspent by ten thousand so that's
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pretty simple you know once you know how
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these work and how to figure out this
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kind of problem it's obviously very
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basic math at that point it's really
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just understanding what these mean and
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how they work against the Appropriations
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