The Government Accounting Manual (GAM) for National Government Agencies defines obligation as:
Obligation is an act of a duly authorized official which binds the government to the immediate or eventual payment of a sum of money. Obligation maybe referred to as a commitment that encompasses possible future liabilities based on current contractual agreement.
Obligation has two kinds: 1) Due and Demandable Obligations and 2) Not Yet Due and Demandable Obligations.
Due and Demandable Obligations (DDO) pertain to the goods purchased which have already been delivered or services which have already been rendered.
For instance, a government agency has ordered office supplies from a store and the same have already been delivered, inspected and accepted by the agency. Such goods may already be considered as DDO. Meaning, the agency is already required to pay the items or the seller has already the right to demand payment.
Conversely, Not Yet Due and Demandable Obligations (NYDDO) are contracts which the government entered into for which the goods have not been delivered or services have not been rendered.
For instance, a government agency has entered into a agreement with a contractor to construct a building for a specified amount of money and time. Such agreement entails a contractual obligation between the government and the contractor. The Contract, between the government and the contractor, may be the basis of the agency to incur obligation which is classified as NYYDO.
Stated simply, DDO is incurred when goods and services have already been delivered or rendered; or if the goods and services have not yet been delivered or rendered then the obligation is considered NYDDO.
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