Final answer:
Encumbrance refers to a claim or liability on an asset that can limit its use or transfer, commonly seen in financial statements and accounting practices.
Explanation:
An encumbrance is a claim or liability on an asset, often found in financial statements, that can hinder its transfer or use.
For example, if a company takes out a mortgage to purchase a building, the mortgage becomes an encumbrance on the property until it is paid off.
In accounting, encumbrances are important to reflect accurately in financial reporting.
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