Commitment

In accounting commitments are the funds that are set aside or Earmarked to pay expenses or for some business events or projects in future, generally, to purchase goods or service, thereby converting the commitments into business expenses. Commitment can also be created for the cash inflows of business for example commitment for the future sales of goods or service and other incomes.

Important to remember that commitment is not liabilities and therefore not reported in balance sheet as liabilities but they might be including in financial statement notes. The purpose of commitment is to plan and evaluate future cash flows of business entity