Ohio s Central Accounting System controls expenditures at this level, so at no time can expenditures exceed appropriations and financial-related legal compliance is assured. Under this basis of accounting, the state recognizes revenues when cash is received and expenditures when cash is paid. Encumbrance Accounting Encumbrance accounting, under which purchase orders, contracts, and other commitments for expenditures are recorded as a reserve of the applicable appropriations, is employed as an extension of formal budgetary integration in the state's accounting system. Outstanding encumbrances at fiscal year end are recorded as reservations of fund balance for expenditure in subsequent years. Operating encumbrances are generally canceled five months after fiscal year-end while capital encumbrances are generally cancelled two years after the biennial period for which they are appropriated.
Unencumbered appropriations lapse at the end of the biennium budget period.
For external reporting, in its non-GAAP budgetary financial statements, the state also reports encumbrances as expenditures in the year when related purchase commitments are made.