An encumbrance is a reservation of budget funds that are set aside to make sure that actual expenditures do not exceed the available budget.
An encumbrance is a right to, interest in, or legal liability on real property that does not prohibit passing title to the property but that diminishes its value. Encumbrances can be classified in several ways. They may be financial (ex: liens) or non-financial (ex: easements, private restrictions). In Hong Kong, there is statutory definition of encumbrance. In Conveyancing and Property Ordinance (Cap. 219) it reads:  Encumbrance Law & Legal Definition. Encumbrance means a lien or claim on property. It is a burden or claim over a property that is binding on the property. An encumbrance can affect the clarity of a good title, or diminish the value of property. However, it will not prevent transfer of title. Under accounting, an encumbrance is contingent liability, contract, purchases order, payroll commitment, tax payable, or legal penalty that is chargeable to an appropriation account. Encumbrance. An encumbrance is a promise to pay a particular amount of money in the future in exchange for a good or service that another person or entity will provide. Most entities, particularly government organizations, use encumbrances so that they can appropriate funds where they are needed. Recording an Encumbrance. To record an encumbrance, the accountant or bookkeeper debits encumbrances and credits reserved for encumbrances for the amount that the organization estimates it must pay in the future. A debit increases an asset account and decreases a liability account, while a credit does the opposite. DEFINITION of 'Encumbrance'. An encumbrance is a claim against a property by a party that is not the owner. An encumbrance can impact the transferability of the property and restrict its free use until the encumbrance is lifted. The most common types of encumbrance apply to real estate; these include mortgages, easements and property tax liens. It is a form of encumbrance because the lessor does not give up title to the property, but his or her use of the property is significantly constrained by the lease agreement. Lien. A lien is a type of security interest, an encumbrance that affects the title to a property. An encumbrance is a reservation of budget funds that are set aside to make sure that actual expenditures do not exceed the available budget. If the encumbrance process is enabled, you can create purchase order encumbrances that are recorded in the general ledger when a purchase order is confirmed. Encumbered amounts can then be spent when vendor invoices that reference a purchase order are confirmed. Not all forms of encumbrance are financial, easements being an example of non-financial encumbrances. An encumbrance can also apply to personal – as opposed to real – property. The term is used in accounting to refer to restricted funds inside an account that are reserved for a specific liability. It is a form of encumbrance because the lessor does not give up title to the property, but his or her use of the property is significantly constrained by the lease agreement. Lien. A lien is a type of security interest, an encumbrance that affects the title to a property. 5-0410.00 PURPOSE OF ENCUMBRANCE ACCOUNTING Since budgets are the legal authority to spend money, it is important for school administrators to haveaccurate, up-to-date information on the status of budget balances at any given time. To have an accurateidea of the situation, knowing the amount spent to date is not enough. 5-0400.00 ENCUMBRANCESNOTE: OPI encourages, but does not require, the use of encumbrance accounting.Montana schools may choose to : (1) Not record encumbrances, (2) Record encumbrances only atJune 30, or (3) Record encumbrances continually during the year (i.e. encumber each purchase order). You have two options for using encumbrance data to monitor over-expenditure of a budget: After actuals and encumbrances have been posted, you can generate reports to show over-expenditures. You can also can use funds checking to prevent over-expenditures before they occur.  An encumbrance is the first part of a three-part process for purchasing and paying for goods or services. (The other two processes are the Accounts Payable process and the Cash Disbursements process). An encumbrance is a special type of accounting transaction that anticipates a future expenditure. Funds are encumbered, or set aside, in a particular appropriation budgetary account for a specific future purchase. Therefore, an encumbrance approval system is proactive rather than Definition Pre-approval is the key! 30 reactive since the officers have the ability to approve, question, or if necessary, pre-empt a potential commitment of funds from taking place before a legal liability is incurred.
https://en.wikipedia.org/wiki/Encumbrance http://definitions.uslegal.com/e/encumbrance/ http://www.ehow.com/info_8568015_encumbrance-accounting.html http://www.investopedia.com/terms/e/encumbrance.asp https://technet.microsoft.com/en-us/library/hh209307.aspx http://www.investopedia.com/terms/e/encumbrance.asp http://opi.mt.gov/pub/School%20Finance/SchoolAccountingManual/5-0400%20Encumbrances.pdf http://docs.oracle.com/cd/A60725_05/html/comnls/us/gl/enccycle.htm http://www.subboard.com/accounting/_pdf/manual/05+05_1_Encumbrance_Approval_System.pdf
purpose of encumbrance accounting