Which statement correctly differentiates a commitment and an obligation?

• A. A commitment is a legal liability; an obligation is an internal plan to fund.
• B. A commitment is an internal plan to fund; an obligation is a legal liability recorded.
• C. A commitment and obligation are interchangeable terms.
• D. A commitment is an internal plan to fund; an obligation is a disbursement.

Answer: (D)

The concept hinges on the flow of funds and liability in budgeting. A commitment is an internal plan to fund a future transaction; it reserves resources and signals intent but does not create a legal payment obligation. An obligation is a legal liability recorded when the government or organization is bound to pay for goods or services; it represents a binding commitment to disburse funds in the future. A disbursement is the actual payment of cash or equivalent, the moment funds are released to satisfy the obligation.

So, the key distinction is: commitment = plan to fund, obligation = legal liability recorded, disbursement = actual payment. For example, a department may commit to purchase equipment, which reserves budget; when an invoice is approved, an obligation is recorded; when payment is made to the supplier, a disbursement occurs.