 Hello, and welcome to this session. This is Professor Farhad. In this session, we would look at two examples for budgetary accounting. Now, those two examples could appear in the form of a CPA simulation on the CPA exam. So it's very important that you are familiar with budgetary accounting because they are heavily covered, but this topic is also covered in a governmental and not for-profit graduate or undergraduate accounting course and obviously the CPA FAR section. If you have connected with me on LinkedIn, please do so. YouTube is where I house all my 1,500 plus accounting, auditing, tax, all my courses right there, a list of them, 1,500 lectures. Please check them out. On my website, I do have additional resources such as the exercises that you will see today, the Excel sheet, any PowerPoint slides that's listed on the website. You have access to as well as multiple choice through false questions, exercises, and if you are studying for your CPA, 2,000 CPA questions. If you are looking to study with someone, studypal.co can connect you with someone that they are an artificial intelligence, driven study body platform that match you with a candidate either for the CPA, CFA, or any other exam. They are in 85 countries and 2,500 cities. So today we're gonna look at two exercises starting with the first one. The first one would deal with journal entries and those journal entries, we're gonna be looking at budgetary accounting to show you how budgetary accounting works. So we have one, two, three, four, five, six, six transactions. So let's go ahead and look at the Excel sheet because here I can have the Excel sheet with the journal entries. So for each of the summarized transaction for the village, the general fund prepare the general ledger entries. So starting with A, the budget was formally adopted, was formally adopted and for estimated revenue of 1,120,000 and appropriation of 987,000. In simple English, they created the budget for this village and the estimated revenue to be 1,120,000 and appropriation, which is expenditure or simply put by expenses, 987. Now this is good because what's gonna happen based on the estimate, they're gonna have a budgetary fund balance, accredited balance, which is kind of a surplus. So what entry do we make? Well, first we're gonna, we are going to, we are going to debit the revenue account. When it's not revenue account, technically, it's estimated revenue. We're gonna debit estimated revenue for 1,120,000. We're gonna credit appropriation control 987,000 and simply put appropriation control means the budget has been approved to spend that much money. So we are approved to spend that much money 987,000. Now the difference, obviously, we are thinking about or planning to bring more revenues than expenses. The difference is 133. In a sense, this is a surplus or increase in the budgetary fund balance. So this is transaction A and this is how we start the budgetary process. Transaction B, revenue were received all in cash in the amount of 1,105. Good, we're starting to receive some cash. So we debit cash for that amount because we received that much cash and we credit revenue account, revenue control or just revenue. Now this is the actual revenue. This is the actual revenue because revenue takes a credit. This is the actual revenue. Now transaction C, purchase ordered were issued in the amount of 479. That's all what happened. All what we did is we issued a purchase order. P.O. were issued for 479, simply put. Now we are ready to make purchase order. We are ready to make purchases. So what do we have to do when we issue a purchase order? Here's what we have to do. There's a series of, in a sense of transaction. First, we have to encumber this account. We're gonna encumber this account and encumber this amount means, we're gonna say, remember we said we're gonna spend 987. Now we said we are going to spend 479. This is what called encumbrance account. This way, we remove it from the budget. So simply put, this amount is removed from this amount. Although we only place a purchase order. We issued a purchase order. We didn't do anything yet. Nevertheless, the government, because control is very important, we have to put that money away. So we credit budgetary, encumbrance control and we credit a budgetary fund balance for the same amount, budgetary fund balance reserved for encumbrances 479. Okay. Now transaction D of the 479 in C. So remember we encumbered 479. Purchase order were filled in the amount of 470, 500. So we filled out purchase order. So we filled out purchase order of 470. The invoice was, I'm sorry, 470, 500. The invoice was only $470,000. Now, the purchase order were filled and we filled 470,500 of those 479. So the first thing we have to do is we have to book this entry. Budgetary basically reverse what we did earlier. Reverse what we did earlier. So notice here, encumbrances control is credited and the budgetary fund balance is debited. So basically we reverse this because now we actually, the purchase order were filled. The invoice was 470,000. The invoice was only 470,000. Well, what does that mean? It means we have an expenditure now because we are invoice 470. We thought it's gonna be 470,500 and we credit basically a payable. Now we're not yet paid. Therefore, we're gonna pay it. So this is where the expenditure took place. This is where the expenditure took place. Expenditure for payroll not encumbered amount the 530. Now we were gonna record expenditure for payroll. Payroll expenditure generally they are not encumbered. Therefore, we're gonna debit expenditure 513,000 and credit payable or salaries and wages payable or simply accounts payable here for that amount. Amount in D and E are paid. So simply put D and E are paid, the two payable where we have to debit the payable for that amount and credit cash for that amount, credit cash for that amount. So those are series of journal entries. The last couple of ones you should be familiar with. The focus here is as a government and not for profit accounting students or if you're studying for the exam, the key is those entries. These are the budgetary account, specifically let me focus on only appropriation control. You appropriated that much. Okay, you said you're gonna spend that much. In transaction C, let me look at transaction C, purchase order were issued. Once the purchase order are issued, you encumber the amount. That's all we did is we issued them. Then they were filled. Once they are filled, we reverse the encumbrance. So we reverse this. We reverse this entry, okay? Then the actual invoice were for 470. Now we have an expenditure and payable. Then we paid the payable. So I hope these transactions will help you practice and understand the budgetary accounting. Now let me take a look at another exercise, which I believe it's very beneficial as well. See if you can read what happened. So this is what we have here. And this is basically, I would say this is a continuation of the previous chapter. Appearing below is a subsidiary balance, subsidiary ledger for the public safety department for the city of Boone after the first month of the year. Five entries has been made, okay? So describe the most likely event that led to each of the posting. One, two, three, four, five. So do you know what happened here? Well, let's see. We have an appropriation column, encumbrance column, expenditure column, and basically ending appropriation and expended appropriation. Well, let's look at this. Amount in credit means amounts in parentheses means they are credited. So you credited appropriation. Well, guess what? What happened in the prior exercise? In the prior exercise, we debited estimated revenue. We credited appropriation and we had the fund balance credit, happened to be credit fund balance because we had more revenues than expended and more estimated revenue than expenses. So here's what we did. We credited appropriation. So what does that mean? It means this is when we approved the budget. So simply put, this entry means budget was approved, budget approved to spend $300,000. That's all what it means, okay? In the amount of 300,000. Transaction two, transaction two, we see encumbrances increased, were debited. Remember, when we increase encumbrances, it means purchase order were placed, okay? So once the purchase order were placed, we increase encumbrances, this goes up, and notice the appropriation amount now, we only have in our appropriation, $285,000 to spend, okay? Why? Because we said we're gonna buy something for $19,500, okay? Transaction three, notice encumbrances went down. It's minus, it's credit. Well, it means invoice totaling, okay? The invoice is different. Well, it means 16,000. Remember, the first thing is we do the encumbrance. The first thing we do, let's do the $19,500. Let's do the entries, I believe it's better. So what we do is we debit encumbrance, $419,500, and we credit the budgetary fund balance. Budgetary fund balance credited $19,500, whoops. So this is the entry that we make for the $19,500. In transaction three, $16,000 were reversed. So we reverse this, we will do the opposite for only $16,000. We'll do the opposite only for $16,000. Simply put, we debit budgetary fund balance, credit encumbrance, but the actual expenditure was $15,500. We thought we're gonna spend $16,000, we only spent $15,500. This is what transaction three means. And notice, notice what happened here. Just want I want you to notice something that the appropriation balance went from $28,500 to $281,500. So simply put, because we spend $500 less on what we thought we're gonna spend, therefore this $500, it goes back into the budget. So the appropriation account went up $500 after transaction three. Transaction four, nothing, $11,000 of expenditure. Remember, certain expenditure like payroll, they are not encumbered. Well, guess what? They are gonna reduce the budget, the appropriation budget by $11,000. And here $18,000, $18,000. And notice here, this is a debit. Well, what is this likely? Most likely we reduced our appropriation. Simply put, we thought we're gonna spend $300,000. Now, what's 300 minus 18? In total, we're gonna be spending 280, 282. So simply put the total budget now it's 282 because we simply put, notice we reduced the budget by 18,000 because we simply think, we're spending too much. So we reduce the budget or we don't need that much spending. I don't know what happened but the point is we reduce the budget. We have to cut cost, I don't know why. Maybe revenue that we estimated coming in is not coming in. It doesn't matter. The point is, if appropriation is debited, which is like the 18,000, it's the opposite as if it's credited. When it's credited, it means we're increasing our future budget. Now we are debiting our budget, budget is going down. I hope these exercises back to back gave you a better idea about budget theory accounting. If you have any questions, email me. I strongly suggest you visit my website for additional lectures and exercises and true, false, multiple choice and practices. As this is a good investment in your career and in your school and in your certification, study hard and good luck.