What accounting device ensures that each Council Controlled department stays within budgeted amounts?

An encumbrance account is a pivotal tool used in budgeting and accounting, particularly in a governmental or organizational setting. The essence of an encumbrance account lies in its ability to track commitments against budgeted amounts before actual expenditures occur.

When funds are earmarked for specific purposes, such as departmental operations or projects, they are recorded in the encumbrance account. This action reduces the available budget for that department by the amount encumbered, thus providing a clear, real-time understanding of how much budget remains after accounting for these commitments. By utilizing encumbrance accounts, each Council Controlled department can effectively monitor its spending and ensure that it does not exceed its allocated budget.

This method promotes fiscal responsibility and helps in managing resources efficiently. It is especially beneficial for tracking outstanding obligations, ensuring that departments adhere to their financial plans throughout the fiscal year, thus preventing overspending.