What is an encumbrance accounting in public sector accounting?

Encumbrance accounting in public sector accounting is a method used to track commitments for future expenditures, helping to ensure that funds are available when needed. It involves recording obligations when a purchase order is issued, which helps prevent overspending by reducing the available budget. This practice enhances budgetary control and provides a clearer financial picture by reflecting both current spending and future obligations. Ultimately, encumbrance accounting aids in the responsible management of public funds.