Chapter 17, Problem 17.10Q

To determine

Outstanding obligations at the end of fiscal period: depends on the governmental unit’s policy. The government may allow outstanding liabilities to lapse; that is the unit will not honor these obligations in current year but it will carried over to the New Year, the New Year budget must rebuild them. A second method is to carry over the obligations as non-lapsing spending authority. This method recognizes the practical aspects of encumbrances outstanding at the end of fiscal period.

To explain: the main difference between lapsing and non-lapsing methods of accounting for encumbrances at the end of the fiscal year, and actual expenditure in subsequent year.