Encumbrance Accounting

Question 1

Appropriations

Answer 1

Amounts set aside for certain purposes

Question 2

Encumbrance

Answer 2

Like an appropriation inside an appropriation. If you have $10,000 appropriated for computer purchases during the year and then you issue a purchase order to actually buy $2,000 worth of computers, you would encumber $2,000 of the $10,000 appropriation

When the goods are actually received, you reverse the encumbrance and record an expenditure.

The amount of an appropriation that is left over after expenditures and any encumbrances is called the unencumbered, unexpended appropriation.

Question 3

Formulas for appropriations

Answer 3

Appropriation
LESS encumbrances
LESS expenditures
= Unencumbered, unexpended appropriation

Question 4

Steps for when an appropriation is actually going to be spent

Answer 4

First step is an encumbrance (usually initiated with a purchase order), when the goods are actually received for that encumbrance, the encumbrance is REVERSED and then an expenditure is recorded. So the encumbrance is basically turned into an expenditure when the goods are received.

Appropriations are a credit balance
Encumbrances are a debit when recorded (to lower the appropriation)
When encumbrance is reversed it’s credited (to reverse the debit)
Expenditure is a debit

Question 5

Other financing sources and uses

Answer 5

Other financing sources will be non-revenue sources of funding such as bonds or long-term debt. They can also be transfers from other funds.

The actual titles you might see are:
Other financing sources - transfers in
Other financing sources - transfers out
Other financing uses

Transfers from the general fund or debt service fund will always be listed as “other financing sources” and won’t be listed as “revenue”