An encumbrance refers to funds committed to fulfilling contracts or purchase orders for goods and services. Government agencies, nonprofits, and other organizations use encumbrances, usually in conjunction with fund accounting.
In order to stay within their budget and avoid overspending, organizations utilize encumbrances when issuing purchase orders. Money is set aside for the transaction and is no longer available for other purposes. When the vendor is paid for the purchase order, the amount ceases to be an encumbrance and the payout is recorded.
Carillon® ERP fully supports encumbrances, fund accounting, and grant tracking throughout the system. For more information or to set up a free, personalized demo, please contact us.