The Encumbrances control account is decreased when:

• A. At order
• B. On payment
• C. On receipt
• D. When budget is adopted

Answer: (C)

Encumbrances represent a commitment of appropriations for a future purchase. They are increased when a purchase order is issued to show that part of the budget is set aside. The encumbrance is decreased when the goods or services are actually received because that is when the government moves from a commitment to recognizing a real expenditure. The typical entry to close the encumbrance is to record the expenditure (debit Expenditures) and remove the encumbrance (credit Encumbrances). Payment happens after the liability has been recognized and does not directly reduce the encumbrance balance. Budget adoption and ordering create or reserve encumbrances, but do not reduce them.