If you receive a refund against a prior year obligation that is expired but not cancelled you ...

If you receive a refund against a prior year obligation that is expired but not cancelled you ...

• A. Adjust the obligations and outlays of the expired account
• B. Add to current year obligations
• C. Do nothing
• D. Reclassify as new funding

Answer: (A)

When a refund arrives for a prior-year obligation that is expired but not cancelled, you adjust the expired account’s records to reflect the reversal. The funds and the related obligation aren’t re-credited to current-year spending, because the authority to incur new obligations in that expired period no longer exists. Instead, you reduce the obligations and the associated outlays in the expired account by the amount of the refund. This keeps the accounting aligned with what actually happened: the prior-year commitment was not fully spent, so the recovery comes off that expired account rather than being shifted to new funding or ignored. So the correct approach is to adjust the obligations and outlays of the expired account. It wouldn’t be appropriate to add the refund to current-year obligations, do nothing, or reclassify it as new funding, since none of those accurately reflect the handling of a prior-year, expired-but-not-cancelled obligation.

When a refund arrives for a prior-year obligation that is expired but not cancelled, you adjust the expired account’s records to reflect the reversal. The funds and the related obligation aren’t re-credited to current-year spending, because the authority to incur new obligations in that expired period no longer exists. Instead, you reduce the obligations and the associated outlays in the expired account by the amount of the refund. This keeps the accounting aligned with what actually happened: the prior-year commitment was not fully spent, so the recovery comes off that expired account rather than being shifted to new funding or ignored.

So the correct approach is to adjust the obligations and outlays of the expired account. It wouldn’t be appropriate to add the refund to current-year obligations, do nothing, or reclassify it as new funding, since none of those accurately reflect the handling of a prior-year, expired-but-not-cancelled obligation.