Purchase Method

For certain governmental fund expenditures, the purchase method may be used. With the purchase method, supplies and prepaid amounts such as prepaid insurance and inventory are treated as expenditures in total when the purchase is made. Any amount on hand at the end of the period is reversed into a current asset account. The amount in the current asset account must be a reservation of fund balance. This purchase method has nothing to do with the purchase method used to account for business combinations. See also consumption method.