What is the primary function of encumbrance accounting?

The primary function of encumbrance accounting is to track commitments for future expenditures. This accounting method is essential in the budgeting process, as it allows governmental entities to earmark funds for obligations that are anticipated but not yet incurred. By recognizing these commitments, organizations can maintain a clearer view of their remaining available budgetary resources. This practice helps to prevent overspending and ensures that sufficient funds are set aside for expected expenses, thereby enhancing fiscal responsibility and accountability.

In contrast, tracking actual expenditures in real time pertains more to standard expenditure accounting and does not capture obligations that have not yet been fulfilled. Forecasting future revenue focuses on projecting income, which is a different aspect of financial planning. Managing existing assets involves asset management activities, which are distinct from the operational focus of encumbrance accounting on future commitments.