Resolution

When an Encumbered Contract is created (let's say with one current year line for $100), a positive $100 COE journal is created to the Encumbrance of the account in current year.

When a Purchase Order is created and references this Contract (also in current year for $100), two journals are created: a positive $100 POE and a negative $100, which liquidates the Contract Amount.

At this time, you have a total Encumbrance of $100 between both the Contract and the Purchase Order. Invoices applied to the Purchase Order will liquidate the PO in the form of POL (Purchase Order Liquidation) journals.

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