Recording Encumbrances. During July 2010, the first month of the 2011 fiscal year, the City of Marion issued the following purchase orders and contracts (see Problem 3—4):
General government............ $ 50,000
Public safety............... 200,000
Public works............... 75,000
Health and welfare............ 65,000
Miscellaneous............. 4,000
Total purchase orders and contracts...... $394,000
Required
a. Show the general journal entry to record the issuance of the purchase orders and contracts. Show entries in subsidiary ledger accounts as well as general ledger accounts.
b. Explain why state and local governments generally record the estimated amounts of purchase orders and contracts in the accounts of budgeted governmental funds, whereas business entities generally do not prepare formal entries for purchase orders.