Question
Budget variances have to be interpreted with caution. The data presented below were taken from the books and records of the village of Denaville. All
Budget variances have to be interpreted with caution.
The data presented below were taken from the books and records of the village of Denaville. All amounts are in millions. The village encumbers all outlays. As is evident from the data, some goods or services that were ordered and encumbered have not yet been received. City regulations require that all appropriations lapse at year-end.
1.
Prepare summary entries to record
- a.the budget
- b.the encumbrance of the goods and services
- c.the receipt of the goods and services. All invoices were paid in cash.
- d.the actual revenues (all cash receipts)
2.
Prepare summary entries to close the accounts
3.
What would be the year-end
- a.fund balance (unassigned)
- b.reserve for encumbrance balance (irrespective of how classified)
4.
Prepare a schedule in which you compare budgeted to actual revenues and expenditures.
5.
A citizen reviews the budget to actual schedule that you have prepared. She comments on the rather substantial favorable variance between budgeted and actual expenditures and questions why the government did not spend the full amount of money that it appropriated. Briefly explain to her the nature of the variance.
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