What are the elements of closing entries for budget, activity, and encumbrances?

• A. Credit Revenues, Credit Expenditures
• B. Debit Revenues, Debit Unassigned Fund Balance
• C. Debit Expenditures, Credit Encumbrances
• D. Debit Appropriations, Credit Estimated Revenues

Answer: (B)

The correct choice identifies the appropriate closing entries for budgetary accounts in governmental accounting, specifically relating to the treatment of revenues and fund balances at the end of a fiscal period.

When closing entries for budgetary activities are made, revenues that have been established within the budget must be debited to clear them from the budgetary accounts for the next fiscal year. This is because, at the closure of the fiscal period, the actual revenues and expenditures are analyzed, and any reversing of the budgeted amounts must occur to prepare for the upcoming fiscal year. Correspondingly, crediting the Unassigned Fund Balance reflects the adjustment made in the budgetary process, indicating that the budgeted revenues will no longer apply and thus need to be transferred out of the revenue account.

This treatment allows for an accurate reset of the budgetary accounts, ensuring the budgets represent only current year activities moving forward, preventing any overlapping of accounts from previous years. The other choices do not accurately reflect this standard procedure for closing budgetary accounts in governmental accounting.