Your Ask Joey ™ Answer

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.

Back To All Questions

You might also be interested in...

  • Discontinued Operations on the FAR CPA Exam

    Overview of Discontinued Operations In financial reporting, discontinued operations refer to a component of a company’s core business or product line that have been divested or shut down. Discontinued operations will be reported (net of tax) separately from continuing operations on the income statement. The reason that discontinued operations are reported separately is so that...

  • Equity Method Excel Workbook

    If you would like to use the Excel workbook that was used to create the Universal CPA lecture on the equity method, please click the link below to download the Excel workbook: Equity Method Lecture Example

  • How Hard is the CPA Exam?

    So you’re thinking about taking the CPA exam? Whether you have a dream of becoming a tax advisor, feel as though you need public accounting experience, or just want to solidify your business acumen, the CPA license is one of the most prestigious and well respected licenses in the business world. The exam itself is...