What term refers to money reserved in a budget for purchases that have been committed but not yet paid?

• A. Encumbered Funds
• B. Budgeted Funds
• C. Reserved Funds
• D. Accounts Payable

Answer: (A)

Encumbered funds are money set aside in a budget to cover a purchase that has been ordered or committed but not yet paid. This formal reservation ensures those dollars will be available when the bill arrives, preventing other spending from using them. The encumbrance reduces the available budget, but it isn’t yet an expense or a payable. When the goods or services are received and invoiced, the encumbrance is cleared and the obligation becomes a payable, and the actual expense is recorded. The other terms don’t capture this specific budgeting mechanism: budgeted funds are simply allocated funds, reserved funds is a vague term, and accounts payable is the liability after invoicing, not the reserved amount for a committed purchase.