What constitutes an obligation?

An obligation in the context of contracting and financial management refers to a formal commitment by an entity to pay for goods or services that have been ordered or contracted, which necessitates future payment. When orders are placed or contracts are awarded, they create an obligation because they legally bind the entity to fulfill the terms of payment. This commitment generally entails a future outflow of resources, thereby establishing a clear financial responsibility.

In contrast, while disbursement of funds for goods and services suggests that payment is taking place, it does not represent an obligation itself; rather, it is the fulfillment of an already established obligation. Similarly, an administrative reservation of funds is a step to set aside resources but does not establish a legal commitment to a particular vendor or contract. Annual budget approval reflects the planned allocation of funds but does not constitute a direct obligation to pay for specific goods or services. The correct option is a clear depiction of an obligation because it denotes an actionable contract or order that result in a future financial commitment.