1. A county uses the GAAP basis to report encumbrances. At the end of 2020 there are purchase orders outstanding, for which the goods have not yet been delivered, for $40,000. Which statement below is false? A. Expenditures for 2020 will include the $40,000 purchase orders. B. The expenditures connected with the purchase orders outstanding at the end of 2020 are not separated from expenditures initiated in 2021. C. An entry will be made at the start of 2021 to increase fund balance–unassigned by $40,000. D. If the actual cost of the orders turns out to be $42,000, then $42,000 will be added to expenditures for 2021.

The only accounting technique or principle that is accepted by GAAP which is generally known as the generally accepted accounting principles, is the accrual basis accounting technique. This technique pertains to the matching principle by recording the income whenever it is earned and expenses as they happen.

The four fundamental constraints that are associated with GAAP include materiality, objectivity, consistency and prudence.