Finance & Accounts
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Activity:
Question posted: 11 24 2008 18:24:15 +0000,
2 answers, 1529 views, last activity
07 06 2010 20:18:08 +0000
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In accounting, encumbrances are the recognition of commitments that will subsequently become expenditures when goods and services are received. Encumbrances are posted for documents such as purchase estimates, purchase orders, and contracts
Encumbrances help manage available appropriation, allotment, and budget balances more effectively. When an encumbrance is posted to an agency's financial records, the amount of money available for spending by the agency is reduced by the amount of the encumbrance. By recording the estimated cost of purchase orders and contracts as encumbrances, managers are aware of the future impact of previous financial decisions.
In accounting, an encumbrance is a transaction that occurs when someone
needs to put money away (to hold it) for a specific purpose. In municipal
accounting, an encumbrance is created when a Purchase Order is issued to buy
goods or services. The money has not yet been spent, but is
"earmarked" for that purchase and no one else can use it.
In real life, if you put money into an envelope to hold it to pay a bill, you
have encumbered that money. You probably don’t use budget codes, but if you
have an envelope in your dresser drawer marked “ELECTRIC BILL”, the money you
stash away for the next bill is your encumbrance. How much should be
encumbered? How much do you THINK your bill is going to be? That’s the
encumbrance.
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