Encumbrance accounts need not be closed at year-end if the government is required or intends to honor the encumbrances outstanding at year-end.

Question

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Encumbrances represent commitments made for goods and services that have not yet been received or paid for. If the government intends to honor these commitments, the encumbrance accounts do not need to be closed at year-end. However, if the government chooses to cancel or reduce the encumbrances, the accounts must be adjusted accordingly.

Encumbrance Accounts Need Not Be Closed at Year-End If the Government