A Government Department Uses an Encumbrance System to Keep Tabs

question 18

Multiple Choice

A government department uses an encumbrance system to keep tabs on spending. On July 1, 2013, a department employee issued a purchase order for cleaning supplies estimated to cost $500. The supplies were delivered promptly, and invoiced at $450. What would be the journal entry to record the Purchase Order?

• A) No entry is required.

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Definitions:

Indirect Method

A method used in cash flow statement preparation that adjusts net income for non-cash transactions and changes in working capital accounts to arrive at net cash flow from operating activities.

Increase in Cash

An upward movement in the cash balance of a business during a specific period of time.

Direct Method

In accounting, a cash flow statement preparation approach that lists specific cash inflow and outflow categories directly.

Operating Activities

Business activities directly related to the production, sale, and delivery of a company's products and services, generating revenue and expenses.