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An encrumbrance is a legal claim on a property that affects the owner’s ability to transfer the ownership of the property.
The purpose of encumbrance accounting is to prevent further expenditure of funds in light of commitments already made.At the year end , encumbrances still open are not accounted for as expenditures and liabilities but rather as reservations of fund balance.
In accounting, Encumbrance would mean an amount of money that one is required to spend on a stated thing in the future. Its a contingent liability, contract, purchase order, payroll commitment, tax payable or legal penalty that is chargeable to an account.
In real estate, Encumbrance is a claim against a property by a party that is not the owner. An encumbrance may impact the title transfer of the property and restrict its free use, until the encumbrance is lifted.
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