Question

Why is encumbrance accounting usually used in Capital Projects Funds?

a. Long-term debt is not recorded in these funds.
b. The budget must be recorded in these funds.
c. It helps the government control the expenditures.
d. The modified accrual basis of accounting is used.

Answer 1

Encumbrance accounting is important in Capital Projects Funds because it helps control expenditures, aligns spending with the budget, and is consistent with the modified accrual basis of accounting.

Step-by-step explanation:

Encumbrance accounting is usually used in Capital Projects Funds for several reasons:

• It helps the government control the expenditures: By recording encumbrances, which are commitments to make future payments, the government can track and control the amount of spending that has already been committed.
• The budget must be recorded in these funds: Encumbrances assist in aligning the actual spending with the approved budget for the capital projects fund.
• The modified accrual basis of accounting is used: Encumbrance accounting is consistent with the modified accrual basis of accounting, which is commonly used for government fund accounting.