One review question I have a question on.  It is a short question.

Which of the following amounts are included in a general fund's encumbrance account?

I. Outstanding vouchers payable amounts.

II. Outstanding purchase order amounts.

III. Excess of the amount of a purchase order over the actual expenditure for that order.

I chose the answer with "II and III", but the correct answer indicates that it's "II only".  Isn't II and III the same thing?

The explanation for why it's not III says the following:

Once and "actual expenditure for that order" has taken place (which means the goods or services have been received), the encumbrance is reversed and the actual expenditure is recorded as vouchers or accounts payable. 

To me, that explanation sounds just like Outstanding purchase order amount. 

What am i forgetting?  Thank you very much in advance.

The encumbrance amount is simply reversed when the actual invoice is received. For example if the encumbrance was

encumbrance 50000

           reserve for encumbrance 50000 - reverse when invoice received

Expenditure 55000

    voucher payable 55000

the invoice could be 55000 the extra 5000 would not be taken into consideration when reversing the encumbrance but would be included when recording the expenditure and voucher payable thats the difference in recording actual activity versus budget hope this helps!

thank you very much for your prompt response.

So if I understood it right, what you're saying is, if the actual invoice received is higher than the amount the purchase order was issued, III would be wrong.

If only a portion of the purchase order was invoiced, say 25000, expenditure, then would II and III be the same?

No,

The amount encumbered is not compared to the purchase order based on the price. For example say you encumbured 50000 for 2 cars each costing 25000 and received one of them. Now, you would reduce the encumbrance in half because 1/2 of the amount you encumbured for has been invoiced. Even if the car were to cost you 30,000 the encumbrance would be reduced by 25,000 . The excess amount of a purchase order over the actual encumbrance would never be included in the encumbrance account. The encumbrance is stricly like a budget recording the amount you encumber for is the amount you reverse... hope this makes it clearer this Govt stuff is impossible!