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Encumbrances at Year End

Accounting and Financial Reporting

View Official Policy: Encumbrances at Year End

At the end of each fiscal year, all firm obligations of the University (purchase orders, shipping releases, contracts, etc.) that are chargeable to unrestricted funds are recorded as an expenditure and encumbrance payable (liability) in the encumbrance (ENCUMB) general ledger.  

“Obligated” funds are commonly referred to as encumbrances – meaning the institution has issued a purchase order for goods and services or has signed a contract. Although encumbrances are not expenses for GAAP purposes, they represent an expense of the institution for that particular budget year, and therefore represent an expense for the State of Georgia’s statutory basis of accounting/ Budgetary Compliance Reporting (BCR). Encumbrance transactions are matched to budget periods rather than fiscal years using the budget reference chartfield.

The amount charged to the department may be an amount different from the amount required to liquidate the obligation (encumbrance) in the succeeding fiscal year.  This may be due to discounts, freight charges, or because the University has not been notified by State Purchasing as of June 30th to the exact amount for which a purchase order was issued.

For an obligation that is liquidated for more than the amount charged at June 30th, the excess amount will be charged in the fiscal year in which the obligation is liquidated. For example, if a PO is encumbered in fund 10000 for $100 in fiscal year 1 and the payment is made in fiscal year 2 for $120, then $100 will be charged and funded in year 1 and the $20 will be charged and funded in year 2.

For an obligation that is liquidated for less than the amount charged at June 30th, the balance in the encumbrance payable account that was established for this obligation will be credited to surplus and subsequently return to the State Treasury for lapsable funds or reserved for non-lapsable funds. For example, if a PO is encumbered in fund 10000 for $100 in fiscal year 1 and the final payment is made in fiscal year 2 for $95, then $100 will be charged and funded in year 1 via the PO encumbrance and the $5 will be returned to the State Treasury as surplus in year 2. Each obligation is handled on an individual item basis.

Responsibilities

Responsible University Senior Administrator: Vice President for Finance & Administration

Responsible University Administrator: Associate Vice President for Finance Division

Policy Owner:  Accounting

Policy Contact:  Chris Burback

Phone Number:  706-542-6894

Date Issued:

Last Reviewed/Updated: