In encumbrances accounting, when is the encumbrances control account decreased?

• A. Goods are ordered: Yes; Goods are received: Yes
• B. Goods are ordered: No; Goods are received: No
• C. Goods are ordered: No; Goods are received: Yes
• D. Goods are ordered: Yes; Goods are received: No

Answer: (D)

Encumbrances are used to reserve budgeted resources for a future commitment. When a purchase order is issued, a binding obligation is created against the appropriation, so the encumbrances control account is adjusted to reflect that commitment. In this approach, the act of ordering reduces the portion of funds that remains unencumbered, since that amount is now encumbered for the expected expenditure. The actual transfer from encumbrance to expenditure happens later, when the goods are received and the liability is recognized, not at the moment of receipt. So the most fitting moment for the decrease in the encumbrances control account is at the time the order is placed.