24.8. Encumbrances
Encumbrances are an integral part of budget accountability. Encumbrances represent commitments related to unfilled contracts for goods and services (including purchase orders). The purpose of encumbrances is to prevent further expenditure of funds in light of commitments already made. At year-end, encumbrances that are still open are not accounted for as expenditures and liabilities but, rather, as reservations of fund balance.
The closing entry for a budget at the end of the year is:
Fund Balance
Encumbrances
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