Which 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 come from the idea of encumbrances, which are commitments to spend that have been placed against the budget. When a purchase order or contract is signed, a portion of the budget is set aside so the money will be available once the goods or services are delivered. That reserved amount is not yet paid, but it is earmarked, so it reduces the remaining available funds.

This fits the description of money reserved for purchases that have been committed but not yet paid. Accounts payable refers to money owed to vendors after receiving goods or services, i.e., a liability that is paid later, not the reserved portion of the budget itself. Budgeted funds are the total planned allocations, not necessarily tied to a specific, committed obligation, and reserved funds is a more general term that doesn’t specify the formal commitment captured by an encumbrance. So encumbered funds is the best fit.