Question

Define the term “Expenditure” and distinguish between that term and each of the following terms: 1. Expense 2. Disbursement 3. Encumbrance

Answer 1

Expenditures are defined by the GASB as decreases in fund financial resources other than through interfund transfers.

1) Expense of governmental funds are recognized at the time and in the amount in which liabilities are incurred, whether the liability is for an expense, a current asset, or for a capital asset. FASB defines expenses as outflows or other using up of assets and matches the expense to the associated revenue or period if no revenue to be matched.

2) Disbursementis the payment of cash, generally by check or equivalent. By contrast, an expenditure is recognized when a liability is incurred, even if the liability will not be paid until the following period. Current GASB standards require an intent to repay the liability from currently available financial resources in order to recognize an expenditure in a governmental fund.

3) An encumbranceo an appropriation is the estimated amount of purchase orders, contracts, or other commitments that are chargeable against the appropriation. When the purchase order is filled or contract executed, the appropriation is expended in the amount of the actual liability