Purchase orders are issued in the amount of $427,000. The general ledger entry to record the encumbrance should be

D When a government issues purchase orders, it records encumbrances to reflect commitments against appropriations. This helps track budgetary commitments and avoid overspending. The entry is recorded in the budgetary accounts (not proprietary accounts) as follows: Debit Encumbrances: Recognizes the commitment Credit Budgetary Fund Balance (or Reserve for Encumbrances): Reflects that part of the fund balance is committed This is consistent with modified accrual accounting and standard governmental fund practice. Relevant Reference: GASB Codification Section 1300 – Budgetary Accounting GFOA Best Practices – Encumbrance Accounting GAO Principles of Appropriation Law – Encumbrance Controls Answer : D. Debit Encumbrances $427,000; Credit Budgetary Fund Balance $427,000