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What happens if a transaction to encumber funds results in the account having a negative balance?

What happens if a transaction to encumber funds results in the account having a negative balance?
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Answer #1

If the transaction to income encumber funds result in account having a negative balance,it will mean that the actual expenses is very higher than the encumbrance funds and this will mean that the encumbrance fund has to be adjusted downwards.

Encumbrance fund is generally set aside out of the budget in order to provide the company with hedge that if it is incurring excessive expense than these funds can be used by the company so when a company is is having excess expenses and it is resulting into encumbrance friend turning negative then it will have to downward the encumbrance fund and adjust it with the actual and it will have to be rolled over to the next year also in in order for the the adjustment.

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