The City of Denton uses encumbrance accounting to control expenditures. It charges the cost of outstanding purchase commitments to expenditures in the year they are received, not in the year they are ordered. If the city had $11,000 of purchase commitments outstanding at the end of Year 1 and received those goods during Year 2 at a cost of $11,700, what would be the impact on total fund balance for Year 2?
A) Total fund balance at the end of Year 2 would be $11,700 less than at the end of Year 1.
B) Total fund balance at the end of Year 2 would be $700 less than at the end of Year 1.
C) Total fund balance at the end of Year 2 would be $700 greater than at the end of Year 1.
D) Total fund balance at the end of Year 2 would be same as it was at the end of Year 1.

Question

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The Answer of The City of Denton uses encumbrance accounting to control expenditures. It charges the cost of outstanding purchase commitments to expenditures in the year they are received, not in the year they are ordered. If the city had $11,000 of purchase commitments outstanding at the end of Year 1 and received those goods during Year 2 at a cost of $11,700, what would be the impact on total fund balance for Year 2?
A) Total fund balance at the end of Year 2 would be $11,700 less than at the end of Year 1.
B) Total fund balance at the end of Year 2 would be $700 less than at the end of Year 1.
C) Total fund balance at the end of Year 2 would be $700 greater than at the end of Year 1.
D) Total fund balance at the end of Year 2 would be same as it was at the end of Year 1.

The City of Denton Uses Encumbrance Accounting to Control Expenditures