An encumbrance is the formal recognition of expenditure commitments, such as, the recording of dollar amounts represented by the purchase document. These commitments may be in the form of contractual agreements with employees, purchase requisitions, intramural orders or any other purchase document.
Encumbrances differ from expenditures in that no transfer of funds has taken place.
Funds are normally transferred only after the receipt of and payment for goods and services. Depending on the type of purchase, encumbrances may occur either automatically or manually. Other purchase documents must be encumbered manually using the interactive capabilities of the system or by completing a Departmental Encumbrance Entry form . A department may also encumber planned expenditures. Planned expenditures are purchases that will occur some time in the future but purchase documents have not yet been prepared.