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What is an encumbrance?

Encumbrances are given to funds that have been reserved when a purchase requisition is finalized (encumbered). Encumbrances represent commitments of available appropriations of a government. The main purpose for encumbrances is to avoid budget overspending. They can also be used to predict cash outflow and as a general planning tool.

Encumbrances are used to commit funds to purchase orders based on appropriations for various types of expenditures. The amount remaining in the fund balance after accounting for encumbrances and expenditures will be classified as unencumbered appropriations.

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