The density functional theory investigation on the mechanism of NHC-catalyzed cycloannulation reaction of the homoenolate derived from butenal with pentenone is studied. The M06-2X/6-31+G* and B3LYP/6-31+G* levels of theory, including the effect of continuum solvation in dichloromethane and tetrahydrofuran, are employed. Several mechanistic scenarios are examined for each elementary step by identifying the key intermediates and the corresponding transition states interconnecting them on the respective potential energy surfaces. Both assisted and unassisted pathways for important proton transfer steps are considered, respectively, with and without the explicit inclusion of base (DBU) in the corresponding transition states. The barrier for the crucial proton transfer steps involved in the formation of the Breslow intermediate as well as in the subsequent steps is found to be significantly lowered by explicit inclusion of DBU. The energetic comparison between two key pathways, depicted as path A and path B, respectively, leading to cyclopentene and cyclopentanone derivatives, is performed. The major mechanistic bifurcation has been identified as emanating from the site of enolization of the initial zwitterionic intermediate resulting from the addition of a homoenolate equivalent to enone. If the enolization occurs nearer to the NHC moiety, the reaction is likely to proceed through path A, leading to cyclopentene. The enolization away from NHC leads to cyclopentanone product through path B. The computed results are generally in good agreement with the reported experimental results.