This distinction is particularly important during Fiscal Year-End Close because the Accounting Department and the UCI Budget Office only look at ‘Budget minus Actuals’ to determine if an account or fund is solvent. With Encumbrances, no payments leave the University and no actual expense would be generated on a ledger, since it is an expectation of a future actual transaction. Encumbrances are not considered actual expenses and are not included in actual-expense balances. Actual ExpensesĮncumbrances are open commitments to a transaction. Report users can use this encumbrance indicator to evaluate their available balances and solvency concerns, at budget or fiscal year end.
In Balance Reports, encumbrances can be toggled on or off to reflect available balances. Encumbrances are important in determining how much funds are available as a projected expense planning tool. The purpose and main benefit of encumbrance accounting is avoiding budget overspending, by showing open commitments as part of projected expenses. When an encumbrance is established, the organization’s financial manager should ensure funds will be available for payment of the transaction, in accordance with the overall life-cycle of the contract. The encumbrance transaction shows an outstanding commitment by an organization.
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