What Does Encumbered Mean in Accounting?

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In the world of accounting, the term "encumbered" refers to property owned by one party, but subject to another party's valid claim. Find out about encumbrance in accounting with help from a banking and financial expert in this free video clip.

Part of the Video Series: Accounting FAQs
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Video Transcript

Hi, I'm Lori Greer from Atlanta, Georgia, and I'm here to explain what does encumbered mean in accounting? Encumbered is property owned by one party, but subject to another party's valid claim. It will usually impact the transferability of the property and can restrict it's free use until the encumbrance is removed. An example of where this could occur would be in real estate with an outstanding mortgage or unpaid property taxes however encumbrance can also be used in an accounting context to refer to restricted funds inside an account that are to be used only for a specific liability. I'm Lori Greer from Atlanta, Georgia, and that's what encumbrance means in accounting.

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