The following related entries were recorded in sequence in the general fund of a municipality:

The sequence of entries indicates that
A) Encumbrances were anticipated but later failed to materialize and were reversed. A liability of $12,350 was incurred.
B) An adverse event was foreseen and a reserve of $12,000 was created; later the reserve was cancelled and a liability for the item was acknowledged.
C) An order was placed for goods or services estimated to cost $12,000; the actual cost was $12,350 for which a liability was acknowledged upon receipt.
D) The first entry was erroneous and was reversed; a liability of $12,350 was acknowledged.

Question

The following related entries were recorded in sequence in the general fund of a municipality:

The sequence of entries indicates that
A) Encumbrances were anticipated but later failed to materialize and were reversed. A liability of $12,350 was incurred. 
B) An adverse event was foreseen and a reserve of $12,000 was created; later the reserve was cancelled and a liability for the item was acknowledged. 
C) An order was placed for goods or services estimated to cost $12,000; the actual cost was $12,350 for which a liability was acknowledged upon receipt. 
D) The first entry was erroneous and was reversed; a liability of $12,350 was acknowledged.

Quizplus · Accepted Answer

The entries indicate that an order was placed for goods or services estimated to cost $12,000 and an encumbrance was recorded. Later, the actual cost was found to be $12,350 and a liability was acknowledged upon receipt. This is a common sequence of events in municipal accounting, where encumbrances are used to track expected expenditures and a liability is recognized when goods or services are received.

The Following Related Entries Were Recorded in Sequence in the General