Commitment accounting is also known as encumbrance accounting. Commitment Accounting allows the recording of a commitment in the general ledger for future or planned expenses before the creation or collection of the underlying documents. In this chapter, the learning objectives are: Define an encumbrance, create a purchase order encumbrance, analyze a purchase order encumbrance transaction, process year-end commitments. | Chapter 3: Commitment Accounting CHAPTER 3: COMMITMENT ACCOUNTING Objectives The objectives are: • Define an encumbrance. • Create a purchase order encumbrance. • Analyze a purchase order encumbrance transaction. • Process year-end commitments. Introduction Commitment accounting is also known as Encumbrance Accounting. Commitment Accounting allows the recording of a commitment in the general ledger for future or planned expenses before the creation or collection of the underlying documents. Examples of these documents could be purchase requisitions or purchase orders before committed funds are paid out. This allows the financial records to reflect the allocation of budgetary resources when they are committed instead of when the actual expenditure is recorded, providing financial information earlier than “budget to actual” reports. Examples of commitments might include internal purchases or monthly utility payments. Commitment accounting records the reservation of funds for future payment obligations in the general ledger. In Commitment accounting the accounting entries are made and the appropriation is charged when a contract is started or when an order is placed for goods or services. The entries record the amount to be reserved out of the unencumbered balance that is remaining in an appropriation to honor the commitment. Microsoft Official Training Materials for Microsoft Dynamics® Your use of this content is subject to your current services agreement 3-1 Financials II in Microsoft Dynamics® AX 2012 Defining Purchase Order Encumbrances An encumbrance is a reservation of budget funds that are set aside to make sure that actual expenditures do not exceed the available budget. If the encumbrance process is enabled, you can create purchase order encumbrances that are recorded in the general ledger when a purchase order is confirmed. Encumbered amounts can then be spent when vendor invoices that reference a purchase order are confirmed. Encumbered .
