Encumbrance is the term used to describe a business commitment to purchase goods or services which will be consumed in the normal course of operations. Expenditure, on the other hand, refers to the actual payment for goods and services which have been consumed. Encumbrance can be thought of as an obligation to spend money, while expenditure represents the actual spending of money. Both encumbrances and expenditures are important financial concepts for companies to understand as they are responsible for managing their budgets effectively.