This question is about senior accountant skills.

What is an encumbrance in accounting?

By Zippia Team - Dec. 9, 2022

An encumbrance in accounting is a restriction that is placed on the use of specific funds. This is a concept that is most often used in governmental accounting.

Encumbrances are utilized to make sure that there is sufficient money available to pay for particular obligations. Encumbrances have the disadvantage of adding further complexity to accounting in some industries.

Encumbrances in accounting are most often used in governmental accounting, however, they are also used in the real estate industry. This often comes into play with property tax liens and encumbered properties. Encumbrances also act as strong incentives to settle underlying claims.

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