Restrictions  Imposed  by  the  Incurrence  of  Liabilities.  It
has  been  shown  how  the  establishment  of  funds  imposes  re-
strictions upon  the  availability  of  resources.  Funds  also  im-
pose restrictions  upon  liabilities,  but  these  restrictions  relate
to  the  scope  of  expenditures,  since  all  liabilities  are  the  result
of  formal  or  informal  contracts  entered  into  in  accordance
with  the  provisions  of  expenditure  authorizations.  The
authorization  of  an  expenditure  may  be  expressed  in  the  pro-
visions of  a  law  establishing  a  special  fund  or  in  the  terms
of  an  appropriation  made  out  of  a  fund.  In  short,  all  govern-
ment expenditures  are  made  out  of  some  fund,  either  the  gen-
eral fund  or  a  special  fund.  Therefore,  each  liability  restricts
the  resources  of  some  fund.
The  incurrence  of  actual  liabilities  is  preceded  by  certain
acts  or  steps  that  result  in  the  incurrence  of  contingent  liabili-
ties. The  first  step  in  the  making  of  an  expenditure  is  the
execution  of  a  contract  or  the  issuance  of  a  purchase  order;
and,  when  these  steps  are  taken,  the  fund,  out  of  which  the
expenditure  is  to  be  made,  is  definitely  known;  therefore,  the
available  resources  of  the  fund  are  reduced  by  the  execution
of  a  contract  or  the  issuance  of  a  purchase  order.    Hereinafter,


INFORMATION  NEEDED  REGARDING  FUNDS     45

contracts  or  purchase  orders  as  they  relate  to  funds  will  be
referred  to  as  "encumbrances."  In  order  that  the  financial
condition  of  a  fund  may  be  accurately  known,  it  is  necessary
that  the  encumbrances  against  it  be  recorded  so  that  the
amount  of  resources  that  is  still  available  for  expenditure  can
be  determined.
