In accounting, encumbrance is a commitment to spend a certain amount of money for a particular purpose at a certain point in time.
For example, encumbrance may arise from a situation where an entity enters into a contract with a supplier, via purchase order, to receive a certain amount of good after the passage of six months. The amounts assigned to such a future payment are encumbered on account of the underlying commitment.
Certain expense items are typically encumbered. Examples include items of operating expense such as salary commitment, end of service payments, etc.
