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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. www.wnyric.org/10551049123333197/lib/10551049123333197/_files/An_Encumbrance_Accounting_Primer.doc The formal use of encumbrance accounting as a continuous and integral part of the accounting system is encouraged as a means of enhancing budgetary control. http://www.osc.state.ny.us/localgov/pubs/arm/arm6.htm
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