Contingent liabilities in the form of purchase orders, contracts, or salary commitments which are chargeable to an appropriation and for which a part of the appropriation is reserved. They cease to be encumbrances when paid or when the actual liability is recorded. In the CSU, the monthly financial statements produced by the Financial Accounting System use the term "Open Commitments" as the equivalent to encumbrances.
Obligations in the form of purchase orders, contracts, or salary commitments which are chargeable to an award and for which a part of the awarded amount is reserved. They cease to be encumbrances when paid.
Commitments related to unperformed (executory) contracts for goods or services. Used in budgeting, encumbrances are not GAAP expenditures or liabilities, but represent the estimated amount of expenditures ultimately to result if unperformed contracts in process are completed.
The setting aside, earmarking, and, in some cases, actual obligation of funds as the result of submitting a "Purchase Requisition," an offer letter of employment, or a "Travel Authorization" (TA). Funds remain encumbered under these documents until the goods or services are received and paid for, at which time the encumbrance is converted into an expenditure. Funds are also encumbered equivalent to the salaries and benefits of all regular and part-time employees for the remainder of the fiscal year, or until scheduled termination dates, as appropriate. Employment encumbrances decrease during the fiscal year as salaries are paid. TA encumbrances remain until a trip is completed and a "Travel Voucher" is filed.
Unliquidated commitments or obligations against the account; those financial commitments made against the account which have not yet been paid.
Obligations for expenses incurred in one fiscal year but not paid until after the end of the same fiscal year.
The uncompleted or undelivered portion of a purchase commitment.
Funds set aside to pay for contracted goods and services. Encumbrances represent the dollar amount to be paid upon completion of the contract.
These are commitments related to unperformed contracts for goods and services used in governmental (fund) accounting because governments cannot legally expend more than the amount authorized (budgeted). An encumbrance is partly: (a) a budgetary entry because it represents a future expenditure and the authority to spend, and (b) a proprietary entry because it is a contingent liability that will become a liability to pay for goods and services received by the district. When an employee is hired and before that person is put on the payroll, or when a purchase order for an item or service is created but before it is sent out, an encumbrance must go into the accounting records. When the district receives the item or service, that encumbrance is “liquidated” or cancelled.