Budgetary Accounting and Encumbrances in Governmental Funds
By SimplyCPA · 11 October 2026
On this page (6)
- Why budgets are recorded: The legally adopted budget limits spending, so many governments enter it into the accounts to control expenditures.
- Budget entry: Debit estimated revenues and credit appropriations; the difference goes to budgetary fund balance.
- Encumbrance: When a purchase order is issued, the commitment is recorded so the same appropriation can't be spent twice.
- On delivery: Reverse the encumbrance at the estimated amount and record the expenditure at the actual amount.
- Year-end: Outstanding encumbrances are not expenditures or liabilities — they're reported within restricted, committed or assigned fund balance and disclosed.
Budgetary accounts
| Account | Meaning | Normal balance |
|---|---|---|
| Estimated revenues | Revenues the budget expects | Debit |
| Appropriations | Spending authority granted by the legislature | Credit |
| Estimated other financing sources / uses | Expected transfers in, bond proceeds / transfers out | Debit / Credit |
| Encumbrances | Commitments for goods or services not yet received | Debit |
| Budgetary fund balance | Balancing figure for budget entries | Either |
The full cycle with journal entries
1. Adopt the budget (revenues $1,000,000; appropriations $970,000):
Dr Estimated revenues 1,000,000; Cr Appropriations 970,000; Cr Budgetary fund balance 30,000.
2. Issue a purchase order for supplies estimated at $12,000:
Dr Encumbrances 12,000; Cr Budgetary fund balance — reserved for encumbrances 12,000.
3. Supplies arrive with an invoice of $12,300:
Dr Budgetary fund balance — reserved for encumbrances 12,000; Cr Encumbrances 12,000 (reverse at the estimated amount).
Dr Expenditures 12,300; Cr Vouchers payable 12,300 (record at the actual amount).
4. Close the budget at year-end: reverse the budgetary entries (Dr Appropriations; Cr Estimated revenues; Dr/Cr Budgetary fund balance).
Available appropriation
At any time: Available to spend = Appropriations − Expenditures − Outstanding encumbrances. That's the point of encumbrance accounting — it stops departments committing money that's already promised.
Outstanding encumbrances at year-end
- They are not expenditures and not liabilities — the goods haven't been received.
- Under GASB 54, encumbrances aren't a separate fund balance category. The amounts are included in restricted, committed or assigned fund balance, depending on the source of the constraint, and significant encumbrances are disclosed in the notes.
- If appropriations lapse at year-end but the government intends to honour the orders, they're typically re-appropriated in the next year's budget.
Budgetary comparison reporting
Governments present a budgetary comparison for the general fund and each major special revenue fund with a legally adopted annual budget. It shows the original budget, the final budget and actual amounts on the budgetary basis. Under GASB Statement No. 103, this information is presented as required supplementary information, with explanations of significant variances. If the budgetary basis differs from GAAP (for example, encumbrances treated as expenditures for budget purposes), a reconciliation is required.
Exam trap: Budgetary entries don't appear in the GAAP-basis financial statements at all. They're control accounts — the statements show actual revenues and expenditures.
Study more in our FAR governmental accounting notes.