The Project Accounts team processes encumbrances, disencumbrances, and payment vouchers on a daily basis. Encumbrances are utilized to secure funds for purchase orders and contracts.
Encumbrances and Expenditures
- What is an encumbrance?
An encumbrance is a means of reserving funds for future expenditures. Purchase orders and other documents are recorded on the books, committing such amounts for future payment. The remaining free balance represents the estimated available budget for future expenditures.
- How does an encumbrance differ from an expenditure?
An encumbrance is simply a documented commitment of funds. The expenditure takes place at a later date. Example: The expenditure for a purchase order takes place after the goods and invoice are received. The encumbrance needs to be reversed when the expenditure transpires. The reversal of the encumbrance is called a disencumbrance.
- Why is this important?
It is important to reconcile encumbrances as well as expenditures. An encumbrance must be reversed when the corresponding expenditure is made. Encumbrances that are not reversed will adversely affect your free balance.
Payments on Capital Projects
All payments on a Capital Project account are based on a contractual obligation, whether that is a purchase order (paid voa VP1) or a contract (paid via VP2). If a payment is being requested without a contractual obligation in place, approval must be received via the Manager of Procurement / Warehousing in the Business and Financial Services department.