Final answer:
The statement that an encumbrance represents the estimated future liability for goods or services resulting from a purchase order or contract is true, and it is a key concept in budgeting and accounting to prevent overspending. A deficit, on the other hand, is the annual shortfall between revenues and expenditures.
Step-by-step explanation:
An encumbrance in the context of accounting and budgeting is indeed a representation of the estimated future liability for goods or services which has originated from either placing a purchase order or signing a contract. It is a commitment against the funds allotted in a budget before the actual expenditure has taken place.
This accounting practice is crucial as it helps organizations manage their finances by recognizing the commitments that will become liabilities in the future, ensuring that they do not overspend their budgets. To answer the student's specific question, the statement 'An encumbrance represents the estimated future liability for goods or services resulting from placing a purchase order or signing a contract' is true.
Regarding the other point of discussion, a deficit refers to b. the annual budget shortfall between revenues and expenditures, which means it is the amount by which a government, company, or individual's spending exceeds its income over a certain period of time. It should not be confused with the total amount of debt a government owes, which would be the debt.