Cont'
Let's put in some more info into your example:
Let say we order $10 good in that year
When issue the purchase order, we have :
Dr. Encumbrance 10
Cr. Reserve for encumbrance 10
Let say we have $20 license revenue
Dr. Cash 20
Cr. Revenue 20
Let say you receive the good, you need to reverse the encumbrance account:
Dr. Reserve for encumbrance 10
Cr. Encumbrance 10
Turn out the good is for $11 instead of $10
Dr. Expenditure 11
Cr. Cash 11
At the end of the year, you need to close the actual, you need to do this :
Dr. Revenue 20
Cr. Expenditure 11
C. Fund Balance-unreserved 9
This is a simple illustration, things will get messy if there is outstanding purchase order, or you want to keep track of the inventory, other fin sources, etc.
REG 90
FAR 95
AUD 98
BEC 84
.