Page 2 - Encumbrances Explained

F IN A N C E R EF ER EN C E G UI D E

OVERVIEW

An encumbrance is a type of transaction created on the Compass General Ledger when a Purchase Order (PO) is created. The
encumbrance transaction shows an outstanding budget commitment by Emory. The encumbrance process is important for
budget managers to understand to help avoid budget overspending. Generally, encumbrances are released automatically
when all payments have been made against a Purchase Order. Occasionally, an encumbrance may not be released and
departments may have to initiate a request to have the Purchase Order manually closed.

ENCUMBRANCES

An encumbrance against your budget means that funds are being set aside to meet a financial obligation. Think of your debit
card:

• When you swipe at a merchant it will usually show as pending on your bank account while decreasing your available
balance.
• Once the purchase is settled with the merchant and the credit card company it moves from a pending transaction to a
regular transaction.

Encumbrances decrease your available budget balance. An encumbrance will be generated via Emory Express from orders
(requisitions) involving a shopping cart and check-out, such as:

• America To Go
• Alphagraphics
• Pinnacle Promotions

When a requisition has all Emory required approvals a Purchase Order number is assigned. At that time the encumbrance is
created in Compass and the vendor receives notification of the Purchase Order and instructions on how to submit their
invoices to Emory.

RELEASING ENCUMBRANCES

A Purchase Order will be in one of two statuses:

• Dispatched (active)
• Complete (closed)

When the goods or services have been received by Emory, the vendor submits an invoice to Emory Accounts Payable that
matches the Purchase Order number they received when the PO was sent to them. At this time the invoice amount will be
released or liquidated against the Purchase Order balance. At the time of liquidation, the encumbrance balance and actuals
are both impacted:

• The encumbrance balance is reduced, and
• Month-to-date (MTD) and fiscal-year-to-date (FYTD) totals are increased by the invoice amount.

When a Purchase Order balance is $0, it goes to a complete (closed) status.

EMORY ADVANCEMENT AND ALUMNI ENGAGEMENT | FINANCE REFERENCE GUIDE | Updated 9.1.21 1