How are budgetary entries closed at year end?

How are budgetary entries closed at year end?

• A. Budgetary accounts (estimated revenues, appropriations, encumbrances) are closed to fund balance (assigned or unassigned) to reflect actual resources and obligations.
• B. Budgetary accounts are closed to revenue surplus in the general fund.
• C. Budgetary entries remain open until the next fiscal year begins.
• D. Only encumbrances are closed; estimated revenues are carried forward.

Answer: (A)

In government fund accounting, budgetary accounts are tools used to control the budget—estimates of revenues, appropriations, and encumbrances. At year end, those budgetary entries are closed to the fund balance so the financial statements reflect the actual resources available and the actual obligations incurred for the year. This resets the budgetary accounts for the next fiscal period while the remaining resources and any encumbrances are shown in the fund balance (often with portions classified as assigned or unassigned and encumbrances reserved as appropriate). Closing to fund balance ensures the year’s actual position is captured, rather than carrying forward budgetary figures into the next year. Closing only to revenue surplus would misstate resources, leaving the budgetary mechanism open would prevent a clean start for the new year, and carrying forward only encumbrances ignores the full year’s resources and obligations.

In government fund accounting, budgetary accounts are tools used to control the budget—estimates of revenues, appropriations, and encumbrances. At year end, those budgetary entries are closed to the fund balance so the financial statements reflect the actual resources available and the actual obligations incurred for the year. This resets the budgetary accounts for the next fiscal period while the remaining resources and any encumbrances are shown in the fund balance (often with portions classified as assigned or unassigned and encumbrances reserved as appropriate). Closing to fund balance ensures the year’s actual position is captured, rather than carrying forward budgetary figures into the next year. Closing only to revenue surplus would misstate resources, leaving the budgetary mechanism open would prevent a clean start for the new year, and carrying forward only encumbrances ignores the full year’s resources and obligations.