The encumbrance system is mandated by which directive?

• A. Directive No.1.
• B. Directive No.2.
• C. Directive 85-3.
• D. Directive 85-2.

Answer: (A)

Encumbrance accounting reserves budgeted funds for specific obligations before a payment is made, preventing overspending and showing how much appropriation remains available. The directive that mandates this practice is Directive No.1, which establishes encumbrance accounting as a required control in municipal fund accounting. This directive creates the formal obligation to record encumbrances tied to purchase orders and contracts, giving the government a clear view of committed versus available funds. Other directives generally cover related procedures or separate topics and do not establish the mandatory encumbrance framework, so Directive No.1 is the one that mandates the system.