IT Financials Glossary

Commitments

Posted in Purchasing by mgentle on August 26, 2010

Commitments : the amount owed to a vendor once a product or a service has been delivered but the invoice has not yet been paid.

Note that a commitment is not the same as an accrual. Commitments are recorded in the management accounting system, whereas accruals are recorded in the financial accounting system – and are therefore officially “on the books”.

Some companies extend the scope of commitments to include the total cost of a PO, minus the notice period for cancellation. So if a PO for six months of services can be cancelled with a notice period of one month, then commitments would be the sum of all uninvoiced work plus one month of invoicing. Needless to say, only the uninvoiced work actually done can be accrued.

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One Response

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  1. Accruals said, on April 6, 2011 at 16:22

    […] Accruals vs commitments […]


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