Encumbrances are created automatically when a purchase order is entered using the statuses in the preceding table. An encumbrance is automatically authorized when the transaction amount fits within the budget amount, which is calculated using the following equation:
Budget amount - Actual amount - Encumbrance amount
If the resulting value is a negative amount, the transaction will not be encumbered. As an example, if you have a budget amount of $20,000 and enter a transaction for $12,000, the remaining budget amount is $8,000. Any transaction of more than $8,000 will exceed the budget value and not be automatically encumbered, assuming a tolerance has not been defined in Encumbrance Management Setup.
When the receiving transaction is posted, or a purchase order is deleted or canceled, the encumbrance amount is liquidated (reduced), and in the case of posting, the actual amount is increased by the same value so there is no difference in the remaining budget amount.
Encumbrance...