Chapter (3)

Issues of Budgeting and Control

1- Estimated Expenditures and Revenues (Journal Entries)
3- The Encumbrance Cycle (Journal Entries)

1- Estimated Expenditures and Revenues

Estimated Expenditures Estimated Revenues
Estimated Expenditures Estimated Revenues
(Appropriation) (Estimated Revenues)
What service should be spent What should be collected

Journal Entries(Budgetary& Actual& Closing)

Operating Entries Operating Entries Closing Entries
(Budgetary) (Actual)
Estimated Revenues Revenues Revenues Revenue……Dr
Estimated Revenue...Dr Cash…. Dr Estimated Revenue….Cr
Fund Bal (FB)…………Cr Revenues……. .Cr Fund Bal (UFB)………Cr

Estimated Expenditures Expenditures Expenditures

(FB)…Dr Expenditures…..Dr Appropriation……Dr
Appropriation …Cr Cash…………………...Cr Fund Bal (UFB)…Dr
Expenditures……… Cr

Notes :
1- Estimated Revenue..(Dr) & Actual Revenues…(Cr)
2- Appropriation ..(Cr) & Actual Expenditures..(Dr)
3- Difference between Budget and Actual recorded in FB ( Fund Balance)
Case (1) ( Actual = Estimated )
Actual Revenue = Estimated Revenue = 400
Expenditures = Appropriation = 390
Show the accounting cycle Entries

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 Answer
Operating Entries Operating Entries Closing Entries
( Budgetary ) ( Actual )
Estimated Revenues : Revenues: Revenues:
Estimated Revenue 400 (Dr) Cash 400 (Dr) Revenues 400 (Dr)
Fund Bal (UFB) 400 (Cr) Revenues 400 (Cr) Estimated Revenue 400 (Cr)

Estimated Expenditures Expenditures : Expenditures :

Fund Bal (UFB) 390 ( Dr) Expenditures 390 (Dr) Appropriation 390 (Dr)
Appropriation 390 (Cr) Cash 390 (Cr) Expenditures 390 (Cr)
Or ( One Entry )
Estimated Revenue 400 (Dr)
Fund Bal (UFB) 10 (Cr)
Appropriation 390 (Cr)

Case (2) ( Actual > Estimated )

Actual Revenue = 420 & Estimated Revenue = 400
Expenditures = 415 & Appropriation = 390
Show the accounting cycle ( journal Entries)

Answer
Operating Entries Operating Closing Entries
(Budgetary) Entries
(Actual)
Estimated Revenues : Revenues: Revenues 420 (Dr)
Estimated Revenue 400 (Dr) Cash 420 (Dr) Estimated Revenue 400 (Cr)
Fund Bal 400 (Cr) Revenues 420 (Cr) Fund Bal 20 (Cr)
Estimated Expenditures
Fund Bal 390 ( Dr) Expenditures : Appropriation 390(Dr)
Appropriation 390 (Cr) Expenditures415 (Dr) Fund Bal 25 (Dr)
Or ( One Entry ) Cash 415 (Cr) Expenditures 415 (Cr)
Estimated Revenue 400 (Dr) FB, Deficit = 5 ( Dr) = 25 -20
Fund Bal 10 (Cr)
Appropriation 390 (Cr)

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Example :Ex. 3-5
Budget Actual
Revenue 11.2 11.5
Expenditures 10.6 10.3
Required :
1- Journalize
2- Show the FB that would found in financial statements
Answer
1- Journalize

Operating Entries Operating Closing Entries

(Budgetary) Entries
(Actual)
Estimated Revenues : Revenues: Revenues 11.5 (Dr)
Estimated Revenue 11.2 (Dr) Cash 11.5 (Dr) Estimated Revenue 11.2 (Cr)
Fund Bal (UFB) 11.2 (Cr) Revenues 11.5 (Cr) Fund Bal (UFB) 0.3 (Cr)

Estimated Expenditures Expenditures : Appropriation 10.6 (Dr)

Fund Bal (UFB) 10.6 ( Dr) Expenditures10.3 (Dr) Expenditures 10.3 (Cr)
Appropriation 10.6 (Cr) Cash 10.3 (Cr) Fund Bal (UFB) 0.3 (Cr)

FB, = 0.6 ( Cr) = 0.3 + 0.3

2- The Net change in fund balance

Equals $1.2 — the difference between actual revenues and expenditures
Another Answer
1-Budgetary entries
Estimated revenues—property taxes 7.5
Estimated revenues—sales taxes 2.1
Estimated revenues—other 1.6
Fund balance 11.2
To record estimated revenues
Fund balance 10.6
Appropriations—wages and salaries 6.2
Appropriations—supplies 3.1
Appropriations—other 1.3
To record appropriations

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2-Actual revenues and expenses
Cash 11.5
Revenues—property taxes 7.6
Revenues—sales taxes 2.4
Revenues—other 1.5
To record revenues
Expenditures—wages and salaries 6.1
Expenditures—supplies 3.0
Expenditures—other 1.2
Cash 10.3
To record expenditures
3-Closing entries
Revenues—property taxes 7.6
Revenues—sales taxes 2.4
Revenues—other 1.5
Estimated revenues—property taxes 7.5
Estimated revenues—sales taxes 2.1
Estimated revenues—other 1.6
Fund balance 0.3
To close revenues and estimated revenues
Appropriations—wages and salaries 6.2
Appropriations—supplies 3.1
Appropriations—other 1.3
Expenditures—wages and salaries 6.1
Expenditures—supplies 3.0
Expenditures—other 1.2
Fund balance 0.3
To close appropriation and expenditures
4-The net change in fund balance equals $1.2 — the difference between actual
revenues and expenditures.

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 3-The Encumbrance Cycle
1- Resources Committed or assigned to purchase specific goods or services
2- Dr ….. Normal balance
3- Similar to the expenditure , closed with Appropriation
4- Recorded in budgetary Entry
1- Issuing Purchase Order
Example
Appropriation 990000, Expenditures 500000, and committed for specific goods &
services 200000
Required
prepare the journal entry to issue purchase order
Answer
Appropriation 990000
- Expenditures 500000
Remainder 490000
- Encumbrance 200000
Unreserved 290000
( Money left to be spent in future)
2900000 = Called Unrestricted or Unreserved
Journal Entry :
Dr Cr
Encumbrance 200000
Reserve for encumbrance 200000
2- Receipt of the goods or services and the payment
The Invoice may be :
1- Invoice = Purchase order
No. Effect in ….FB
Invoice = 200000 , …. The FUB = 290000
2- Invoice > Purchase order
Effect in FUB (Decrease)
Invoice = 210000
The FB Decrease 10000 = 290000 – 10000 = 280000
3- Invoice < Purchase order
Effect in FUB ( Increase)
Invoice = 190000 , …. The FB Increase 10000
= 290000 + 10000 = 300000
Journal Entries :
Received the order 200000

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 Dr Cr
1- Reserve for encumbrance 200000
Encumbrance 200000
2- Expenditure 200000
Cash or A/P 200000
Cases of Encumbrance

Encumbrance Cycle

Not needed in the Needed in the following

following year year
One Year More one Year

Case (1) : Not needed in the following year

Example ;
Purchase order 200
Received goods 200, paid 200 in cash
Required :
Journalize
Answer
1- Issuing Purchase Order :
Dr Cr
Encumbrance 200
Reserve for encumbrance 200
2- Receipt of the goods and the payment :
Dr Cr
1- Reserve for encumbrance 200
Encumbrance 200

2- Expenditure 200
Cash 200