Oracle7 Server

General Ledger

Encumbrance Encumbrance Brownbag Setup and Usage

3Section 1Purpose, Scope and Application

Section 2 INTRODUCTION32.1Encumbrance:32.2 Encumbrance Accounting:32.3Usage:42.4Modules Involved in Oracle Application:42.5Prerequisites:4Section 3Top Level view of Encumbrance Flow4Section 4Encumbrance Setup54.1Oracle General Ledger54.1.1Enable Budgetary Control for the SOB54.1.2Assign for Reserve for Encumbrances Account to Set Of Books (SOB)64.1.3Open Encumbrance Year64.1.4Define Budget74.1.5Define Budget Organization84.1.6Define Encumbrance Types94.1.7Define Budgetary Control Groups104.1.8Assign Budgetary Control Groups114.2Oracle Purchasing and Payables124.2.1Enable Encumbrance13Section 5 USAGE155.0Entering Budget155.1Encumbrance Accounting Flow from Purchasing and Payables185.1.1Purchasing185.1.2Payables285.1.3General Ledger325.2Reviewing Encumbrances in GL335.3Encumbrance Accounting and Relief in Various Scenarios335.4Viewing Funds Available355.5Year-End Carry-Forward of Encumbrance Processing355.5.1Year End Carry Forward Check List365.5.2Year-End Carry Forward In Oracle General Ledger:36Section 6Important Terms Used in Encumbrance Accounting36Section 7Important Tables Used for Encumbrance40

Encumbrance Brownbag Setup and Usage

Section 1Purpose, Scope and Application

This white paper addresses the users to verify the common setup steps and provides usage guidelines for encumbrance. The document would take the users through a complete cycle of encumbrance covering all relevant aspects. Please consider all steps or guidelines mentioned below prior to logging an SR with support.

This white paper is intended for all users, consultants and support analysts of Oracle Application. Anyone using this document is expected to have the basic knowledge of Oracle Application setup steps and firm understanding of Accounting Principles apart from having basic knowledge in SQL*Plus.

Section 2 INTRODUCTION

This section is basically to gives a broad idea about Encumbrance and Encumbrance Accounting. It also provides explanations to the word encumbrance, encumbrance accounting and how they are used in Oracle Applications and the modules involved.

2.1Encumbrance:

Reservation of funds is known as encumbrance. The Thesaurus explains the meaning of encumbrance as burden or Load. The purposes of tracking encumbrances are as follows:

Avoid overspending a budget

To facilitate effective control and consumption of budget by pre-allocating budget amount

To Predict cash outflow and as a general planning tool.

Encumbrance is a commitment to pay in the future for goods or services ordered by not yet received. The terms encumbrance and commitment are used interchangeably. The budget amount can be reduced by the amount of encumbrance as listed below.

On creation where approval is not required.

On Approval where the approval is required.

When the goods are received or services are obtained and the invoice is created and matched, then the encumbrance is released and the current year expenditure is accounted.

2.2 Encumbrance Accounting:

Encumbrance accounting is a form of budgetary control within Oracle Applications that enables a company to allocate funding for specific accounts. The funds checking feature which is an integral part of encumbrance accounting, checks for availability of funds on a particular accounting combination.

The funds checking feature can be performed either at the entry level itself before committing the transaction or when the approval is made for the transaction. The approval process checks for the funds check level and the approval is made only when the transaction is passed with the funds check process.

2.3Usage:

The complete use of capabilities of encumbrance accounting, users must enable the budgetary control flag for a set of books. When users enable the budgetary control flag, the system automatically creates encumbrances from requisitions, purchase orders and other transactions originating in feeder systems such as Purchasing and Payables. When users do not enable the budgetary control flag, they can still enter manual encumbrances via journal entry, but Users cannot generate encumbrances from requisitions and purchase orders. Users have two options for using encumbrance data to monitor overexpenditure of a budget. After actual and encumbrances have been posted, users can generate reports to show overexpenditures. Users can also use funds checking to prevent overexpenditures before they occur.

2.4Modules Involved in Oracle Application:

The encumbrance accounting is involved dealt in the following modules.

Oracle Purchasing

Oracle Payables and finally

Oracle General Ledger.

Hence we need to know the basic setup required in each modules.

2.5Prerequisites:

The pre-requisites to enable encumbrance are as follows:

Installation of required modules

Creation of Set of Books in General Ledger

Create a Encumbrance Calendar

Assign the Set of Books in the other modules (Purchasing and Payables)

Enable Budgetary Control in SOB.

Section 3Top Level view of Encumbrance Flow

The encumbrance accounting can be achieved in the following order:

Figure 1: Encumbrance Flow

Description: Figure 1 displays the top-level view of encumbrance flow.

Accounting Entries such as Reserving / Relieving encumbrances are listed below:

When performing reserve on documents in Purchasing such as requisition, PO, Agreements and so on.

When Approving an Invoice in AP

When Creating the Journal Entries in GL.

The table GL_BC_PACKETS is used to store the encumbrance transactions. Each row is created with a packet_id that stores values such as balance_type, encumbrance_type and so on. The values in these columns can be used to identify the nature of the encumbrance (Requisition / purchase order).

Section 4Encumbrance Setup

The setups for encumbrance are done in the following modules as described below

4.1Oracle General Ledger

4.1.1Enable Budgetary Control for the SOBNavigation: Setup -> Financials -> Books

Alternative Region: Budgetary Control Options

Flag the Enable Budgetary Control Check Box

On selecting the check box requires users to enter the code combination for Reserve for Encumbrance Account column, which is available on this region.

4.1.2Assign for Reserve for Encumbrances Account to Set Of Books (SOB)

Navigation: Setup -> Financials -> Books

Alternative Region: Budgetary Control Options

Assign the Code Combination for the Reserve for Encumbrance Account

Figure 2: Enabling Budgetary Control Description: Figure 2 displays the Set of Books window. The window is described in point no. 4.1.1 and 4.1.2

4.1.3Open Encumbrance Year

Navigation: Setup -> Open/Close

Opening the encumbrance year is done to enable the encumbrance entries. When users open the first period ever for Users set of books, General Ledger automatically opens the first encumbrance year as well. When Users open additional encumbrance years, General Ledger automatically rolls Users project-to-date encumbrance balances forward through the last period of the latest open encumbrance year.

Figure 3: Opening Encumbrance Year

Description: Figure3 displays the Open and Close Periods window. The window has been discussed in point no. 4.1.3

4.1.4Define Budget

Navigation: Budgets -> Define -> Budget

The encumbrance is basically for the budgets defined for an organization. Budget is the collection of the estimated amounts defined for an organization. Choose appropriate status for the budget in the Define Budget Organization Form.

Open: The budget is available for update and budget entry.

Current: The budget is open, and it is the default budget when users use most budgeting and inquiry window. Users can have only one Current budget at a time for each set of books.

Frozen: The budget is unavailable for update or budget entry. General Ledger displays the Created Date and Frozen Date, if applicable, for the budget.

Users must select the appropriate period to enter the budget. Users can have the budget opened for a maximum of 60 periods and there is no such restriction available for number of years.

Figure 4: Defining Budget

Description: Figure 4 displays the Define Budget window. This window has been discussed in point no. 4.1.4

4.1.5Define Budget Organization

Navigation: Budget -> Define -> Organization

Budget Organization is the budget entity, to which the budgets are estimated. Budget Organization can be created at various hierarchies. When separate budgets needs to be prepared for sales department, purchase department and so on. Each one of them has to be defined as the budget organization. Again each budget organization can be created only for specific flexfield combinations. For each combination chosen, we can define budget amount and the budgetary control can be enforced separately for each combination.

Choose the accounts for which the budgetary control is required and link it to the budget defined as above. Users need to complete the header level information and then navigate to the ranges and define the ranges for the budget organization. For further information, refer Oracle General User Guide. While defining the Account Ranges, set the appropriate Funds Check level for each Account Range Users choose.

Figure 5: Defining Budget Organization

Description: Figure 5 displays the Define Budget Organization window. The above window is discussion in point no. 4.1.54.1.6Define Encumbrance TypesNavigation: Setup -> Journals > Encumbrances

Define the encumbrance types to segregate the reservation of funds done at various levels viz., Requisition, Purchase Order or Invoice level. This helps to emphasise better financial control. For each source and category combination defined, set the appropriate Funds Check level for each Account Range chosen.

The funds checking feature allow / reject the transaction based on the availability of funds based on the setup as listed below:

Absolute: Allows only when the funds are available

Advisory: Allows the transaction with a warning when the funds are not available

None: No funds checking is performed and thereby allows the transaction to commit whether or not the funds are available.

Figure 6: Defining Encumbrance Types

Description: Figure 6 displays the Encumbrance Types window. The above window is discussed in point no. 4.1.6

4.1.7Define Budgetary Control Groups

Navigation: Budgets -> Define -> Controls

Users can use the pre-defined Budgetary Control Group Standard, otherwise, create a new Budgetary Control Group. Users must enter the values for the Source, Category, Funds Check Level, Tolerance %, Amount, Override Amount and so on.

Figure 7: Budgetary Control Groups

Description: Figure 7 displays the Budgetary Control Groups window. The above window is discussed in point no. 4.1.7

4.1.8Assign Budgetary Control Groups

Responsibility: System Administrator

Navigation: Profile -> System

Query the Profile Option Budgetary Control Groups and set the values at required levels. The Budgetary Control Group value can determine the funds check level operations to be performed when creating the encumbrance at each level (Requisition, PO, and so on.)

Figure 8: Assigning Budgetary Control Group

Description: Figure 8 displays the System Profile Values window. The above window is discussed in point no. 4.1.8

4.2Oracle Purchasing and Payables

Ensure that the sub ledgers point towards the same set of books that you have defined in General Ledger and attached to the GL Responsibility

4.2.1Enable Encumbrance

Users need to select the appropriate encumbrance types and the value so selected can be used by the system while creating the accounting entries. Encumbrance has to be enabled in Financial Options form either in Payables or Purchasing module.

Navigation Purchasing: Setup -> Organization -> Financial Options

Navigation Payables: Setup -> Options ->Financial

Go to Encumbrance Region.

Select the required encumbrance types as defined in step 4.1.6.

Figure 9: Enabling Encumbrance in Oracle Purchasing or Payables

Description: Figure 9 displays the Financials Options window. The above window is discussed in point no. 4.2.1

Section 5 USAGE

This section gives an idea to the users on how the encumbrance entries have to be created and the flow of encumbrances from other modules. This section deals with the following.

Entering Budget

Encumbrance Accounting Flow from Purchasing and Payables

Reviewing Encumbrances in GL

Encumbrances Accounting and Relief in Various Scenarios

Viewing Funds Available

YearEnd Encumbrance Processing

5.0Entering Budget

Budget entries can be entered either through the Enter Budget Amounts form or through the Enter Budget Journals form

Navigations: Budgets(Enter(Journals

Figure 10: Entering Budgets through budget journals form

Figure 10: The above figure shows the budget journals form with an amount of 10000 entered against account 01-130-7230-0000-000 for the month of Jan-03

Figure 11: Check Budget Amount through Funds Available form

Figure 11: The above figure shows the Funds available for the Account 01-130-7230-0000-000 for the month of Jan-03 after the budget journal was created

5.1Encumbrance Accounting Flow from Purchasing and Payables

Encumbrances entries can be created as below.

5.1.1Purchasing

Encumbrance can start from Purchasing. To have the full cycle of encumbrance, we need to create the following

5.1.1.1Requisition

Users can enter, approve and reserve Funds for Requisition.

Navigation: Requisitions -> Requisitions.

Create a requisition, reserve and approve the requisition. When approved users can do a funds check in GL and this should be in requisition phase, provided requisition is the type of encumbrance Users have attached at requisition level in Financial options. Reserving the requisition kicks of the funds checker program and encumbrance line gets created in the table GL_BC_PACKETS. The encumbrance journal entries get created when the program Create Journal Entries is run from GL.

The data in GL_BC_PACKETS table would get deleted, only when the Create Journal Program in GL is run and the journal gets posted.

The Transaction Created can have the following feature

Balance Type

= E (Encumbrance)

Encumbrance Type= REQ (Requisition)

CCID

= CCID given in Requisition Distribution

Accounting when the journal gets posted in General Leger

DocumentExpense DRExpense CRRFE DRRFE CR

Req Reserve 10001000

Figure 12: Creating a Requisition in Purchasing

Navigation: Requisitions(Requisitions

Figure 12 shows the requisition for RS 1000 with the distribution form showing that the charge and budget are to account 01-130-7230-0000-000

Figure 13: Checking encumbrance balance through Funds Available Form after creating a Requisition in Purchasing

Figure 13 shows the encumbrance balance of 1000 after creating the requisition and reserving the same

5.1.1.2Purchase Order

Users can create, approve and reserve Funds for Purchase Order from requisition

Navigation: Auto Create

Find your requisition, Select the requisition and go to automatic. Make sure that the supplier information is entered and select create. This creates the PO. Complete, reserve and approve the PO. When approved users can do a funds check and this should be in PO phase, assuming PO encumbrance is the type attached at PO level.

No journal entries are created at this stage but similar to the previous step Users can create encumbrance entries by Create Journal Entry program. While using PO Encumbrance, users cannot change price, quantity, shipment or currency once a PO has been reserved and approved, the only way to deal with such a situation is to cancel the existing PO and create a new one when a PO is cancelled system takes care of adjusting encumbrance.

The encumbrance created on Requisition is relived when the PO encumbrance is created and Funds are reserved for the PO.

NOTE: The important point over here is that if a user creates the PO manually, it can lead to the duplication of reservation of funds for the same transaction. This is because system treats PO as a separate transaction and the user can end up having double reservation for the same transaction one at requisition level and other at PO level. Hence it is suggested to use only Auto Create mode to create a PO, while using Encumbrance Accounting.

The Transaction Created can have the following feature:

Balance Type

= E (Encumbrance)

Encumbrance Type= PO (Purchase Order)

CCID

= CCID given in PO Distribution

Accountingwhen the journal gets posted in General Ledger

DocumentExpense DRExpense CRRFE DRRFE CR

Req Reserve10001000

PO Reserve10001000

Req Unreserve10001000

Figure 14: Auto-create a Purchase order for the requisition that was created earlier

Navigation: Purchasing responsibility - Autocreate

Figure 14 shows the PO which has been created for the requisition and it is not accrued at the time of Receipt

Figure 15: Checking the encumbrance balance after Auto-creating the Purchase order

Figure 15 shows the Funds Available after creating the PO. The encumbrance amount has moved from Requisition to PO

5.1.1.3Receiving Receipts

On receipt of the goods, the entries are made as follows:

Navigation: Receiving Receipts

Query the PO. Mark as receipt and save. Depending on the routing users may have to deliver it. Once the goods are received system creates Journal entries for the Receiving transaction. At this point PO encumbrance is relieved. Otherwise, it gets relieved when Users post the invoice from payables to GL in Accrual basis of Accounting. In case of Cash basis of accounting PO encumbrance gets relieved when Users post payment information from Payables.

The PO encumbrance is getting relieved based on the setup the user has made, depending on whether the period-end or on-line accrual is selected.

If on-line accrual method is selected, the PO encumbrance can be relieved when the goods are received. In case of period-end accrual, we need run the period-end accrual process.

NOTE: Important reports that can be used to track the encumbrance entries are:

1. Requisition Distribution Detail Report.

2. Purchase Order Distribution Detail Report.

3. Encumbrance Detail Report.

The Transaction created can have the following feature:

DocumentExp DrExp CRRFE DRRFE CRREC DRREC ACC DRREC ACC CR

PO Reserve10001000

PO Enc Relief10001000

Charge Accnt10001000

Figure 16: Receiving the Goods

Figure 16 shows the Receipt made for PO 2548.

Figure 17: Receiving Transaction Summary No Accrual at Receipt

Figure 17 does not show any accounting entries because the accrue at receipt is not

enabled for this PO 2548

Figure 18: Receiving Transaction Summary With Accrual at Receipt

Figure 18 shows Receipt Transaction Summary with accounting entries when the Accrue at receipt option is enabled.

5.1.2Payables

Once the Goods are received and matched against the Purchase Order, the next step is to create an invoice for the Goods received. Invoice can be created at the following scenarios.

5.1.2.1Enter Unmatched Invoices

Navigation: Invoices -> Entry -> Invoices

This is applicable where no purchase order is created. For example, where the invoice has to be created for the services rendered (Audit Fees).

There is no separate step to reserve funds in AP unlike in PO. In AP, Validation process takes care of the funds reservation.

If the invoice is created and matched with PO and the amount matched is equals to PO, then the encumbrance type can be reclassified from PO to INV and no additional entries are generated.

Payable also creates encumbrance when users successfully approve an invoice having a quantity or price variance with the matched PO.

If Users match an invoice to a PO, Payable automatically creates an entry in GL to reverse the PO encumbrance and the Invoice Encumbrance comes into picture

Encumbrance Entries are created when an invoice is validated and approved. The actual entries are created when we transfer to GL through Payables Transfer to GL program and imports the journals into GL. This will bring two entries, the Actual and the Invoice encumbrance relief

You need to run the Create Journal Entry program to bring in the PO Encumbrance relief and the Invoice encumbrance lines into GL

Select the Account Combination at the header level, as in the Assignments window in the Budget Organization. If budgetary control group is used, create a budgetary control group with the source Payables and Category as Manual.

5.1.2.2Entering Invoices and Match with Purchase Order

Navigation: Invoices -> Entry -> Invoices

Complete by entering invoice number, date and amount. Navigate to match and in the Find Window the PO number is displayed. Flag the lines and select Match. You can flag multiple PO lines to match with the Invoice.

The PO distributions lines can be copied to the Invoice distributions. Users can approve the invoice. When approved the funds is checked automatically by the system.

The Transaction Created can have the following features:

Balance Type

= E (Encumbrance)

Encumbrance Type= INV (Invoice)

DocumentExp DrExp CRRFE DRRFE CRAP Accrual DRAP Accrual CR

PO Enc Relief10001000

Invoice Enc create10001000

Inv Enc Relief10001000

Charge Accnt10001000

Figure 19: Invoice Creation and Accounting in Payables

Figure 19 shows the Invoice that has been created by Matching PO 2548 and is also validated.

It also shows the accounting entries created at the time of PO

Figure 20: Funds Available after creating Invoice but before running the AP Transfer to GL process and doing the Journal Import

Figure 20 shows the Funds Available after creating the Invoice. The encumbrance amount has moved from PO to Invoice

Figure 21: Funds Available after creating Invoice and running the AP Transfer to GL process and doing the Journal Import

Figure 21 shows the Invoice after it was approved and transferred to GL using the AP transfer to GL process. This brings in the actual entry and relieves the encumbrance for the transaction.

5.1.2.3Transfer the data to General Ledger

Navigation: Other -> Request -> Run

Select the Payables Transfer to General Ledger. Complete parameters and submit request.

5.1.3General Ledger

Encumbrance entries can be accounted either directly in the General Ledger or they can be imported from Payables or Purchasing. Certain types of expenditures like adjustment entries that are created to adjust the abnormal transaction that have taken place, can be entered directly as a journal. The transactions like the Purchase Invoices that have already been entered into Payables, can be imported into GL, through the GL transfer program (refer 5.1.1.3 Transfer the data to General Ledger). The journal entries are then created by the system once the journal import is completed (Refer 5.1.2.2 Create Encumbrance On Imported Transaction from Purchasing / Payables)

5.1.3.1Create Encumbrance Journals using Manual Entries

Navigation: Journals -> Encumbrance

The source of the journal can be Encumbrance, which cannot be modified. Choose the appropriate category and enter the journals.

5.1.3.2Create Encumbrance On Imported Transactions from Purchasing / Payables

Users can run Journal Import Program to create journal entries for the Encumbrance transactions entered in other modules.

Navigation: Journals -> Import

Choose the source as Purchasing / Payables and enter the relevant columns.

If automatic import was selected while running the General Ledger Transfer Program, there is no need to run the Journal Import Process again as the GL Transfer program would have created all journal lines for the transactions created in AP.

5.2Reviewing Encumbrances in GL

Reviewing Encumbrance entries can be done as listed below:

Create Journal Entries Form by querying the specific journal

Navigation Path: Journals -> Enter

Create Encumbrance Form by querying the specific journal

Navigation Path: Journals -> Encumbrance

Account Inquiry Window

Navigation Path: Inquiry -> Account

Select the Primary Balance Type as Encumbrance and then select the encumbrance type if required. Provide required selection criteria and from the view output. Users can further drill down to the Journal level and then further to the sub-ledger details.

Journals Inquiry Window

Navigation Path: Inquiry -> Journals

If only the encumbrance journals are to be inquired, without giving any other criteria, click on the more button on the Find Journals window and select the Balance Type as Encumbrance.

5.3Encumbrance Accounting and Relief in Various Scenarios

Relieving Encumbrance means the reversal of funds reserved on a particular transaction. It is achieved through reversal of the original entry created for funds reservation. Relieving of Encumbrance is done in the following ways.

5.3.1 Creating another Encumbrance Entry

Creating another encumbrance entry can do relieving Encumbrance. For example when the Purchase order is created for a requisition, the encumbrance created on the requisition is reversed. A Distribution line is created to relieve the encumbrance created on the requisition and the encumbrance is created for the Purchase Order. Similarly the encumbrance is relieved at the subsequent stage. For example, for purchase order, the encumbrance is created on receiving the goods or on creating the accrual for the purchase order and so on.

5.3.1.1Final Close of a Requisition

First an Encumbrance is created as in step 5.1.1.2 for creation of the PO and the encumbrance created on a requisition as in 5.1.1.1 is reversed.

The Transaction created can have the following features:

Balance Type

= E (Encumbrance)

Encumbrance Type= REQ (Requisition)

Accounting

= CrEncumbrance / Charge Account

DrReserve for Encumbrance Account

5.3.1.2Final Close of a Purchase Order

First an Encumbrance is created as in step 5.1.1.3 for creation of the receipt and the encumbrance created on a PO as in 5.1.1.2 is reversed.

The Transaction created can have the following feature

Balance Type

= E (Encumbrance)

Encumbrance Type= PO (Purchase Order)

Accounting

= CrEncumbrance / Charge Account

DrReserve for Encumbrance Account

5.3.1.3Creating an Invoice and matched against a PO

If the invoice is created and matched with PO and the amount matched equals to PO, then the encumbrance type can be reclassified from PO to INV and no additional entries are generated.

5.3.2Without creating another Encumbrance Entry

Encumbrance created once can be relieved without creating another encumbrance entry as explained above. This can be achieved as follows.

5.3.2.1Canceling a Requisition

The Transaction created can have the following features:

Balance Type

= E (Encumbrance)

Encumbrance Type= INV (Invoice)

Accounting

= DrEncumbrance / Charge Account (-ve)

Cr Reserve for Encumbrance Account (-ve)

5.3.2.2Canceling a Purchase Order

The Transaction created can have the following features:

Balance Type

= E (Encumbrance)

Encumbrance Type= INV (Invoice)

Accounting = DrEncumbrance / Charge Account (-ve)

Cr Reserve for Encumbrance Account (-ve)

5.3.2.3Rejecting the Receipt

The following accounting entries are created on rejecting the receipt

Accounting

= DrEncumbrance / Charge Account (-ve)

CrAccrual (-ve)

5.3.2.4Canceling a matched / unmatched invoice

For the Entry created and the invoices matched with exact amount of the purchase order, the balance type can be simply changed from INV to PO, as at the time of matching, only the balance type is changed and no entry is created.

Where the matching is done for different amount and the variance account is created, and then the reversal can be as follows:

Accounting

= DrEncumbrance / Charge Account (-ve)

Cr Reserve for Encumbrance Account (-ve)

5.3.3Relieving Encumbrance Manually

Users can also relieve encumbrances manually in General Ledger. To do so, Users must make an encumbrance entry.

To relieve encumbrances manually:

1. Navigate to the Enter Encumbrances window.

2. Enter or query an encumbrance batch.

3. Choose More Actions.

4. Choose Reverse Batch.

5. Enter the Period to which to reverse the original encumbrance entry. The default period is the current accounting period.

6. Post the reversal batch to relieve the encumbrances.

5.4Viewing Funds Available

Availability of Funds can used to identify the maximum amount that can be spent in a given period of time and is used for better funds management. This can also prevents over spending than the budgeted amount. Funds Availability can be viewed from the Funds Inquiry window.

Navigation Path:Inquiry -> Funds

For further information, please refer to section 5 of this document.

5.5Year-End Carry-Forward of Encumbrance Processing

Perform yearend processing to identify outstanding purchase order and requisition encumbrances, to cancel some or all of these encumbrances, and to carry forward encumbrance, budget, and funds available balances into the new fiscal year. Users can carry forward encumbrances into the next fiscal year. Users can also carry forward an equivalent budget amount or funds available. If users do not carry forward encumbrances, users might want to cancel existing requisitions and purchase orders behind the encumbrances. Users can easily identify purchase orders and requisitions behind encumbrances.

When users carry forward yearend encumbrances, the Carry Forward rule specified determines how General Ledger calculates the amount to be carried forward. Note that General Ledger carries forward encumbrances, not as period activity, but as beginning balances.

Users can keep a checklist as they execute the year-end carry forward. Perform one company at a time, or one encumbrance type at a time, and check off each company or encumbrance type as processed.

5.5.1Year End Carry Forward Check List

Before Users Start:

Run receipt accruals

Post outstanding encumbrance journal entries

Post outstanding budget journal entries

Post outstanding actual journal entries

Mass Cancel In Oracle Purchasing:

Run Encumbrance Details Report to review purchase orders and requisitions behind encumbrances

Define Mass Cancel for purchase orders

Review Run Mass Cancel Listing to verify cancelled purchase orders

Run Mass Cancel for purchase orders

Define Mass Cancel for requisitions

Review Run Mass Cancel Listing to verify cancelled requisitions

Run Mass Cancel for requisitions

Post encumbrance journal entries from cancellations

5.5.2Year-End Carry Forward In Oracle General Ledger:

Run Encumbrance Trial Balance for audit trial of encumbrance before year-end carry forward

Close last period in old year

Open first period in New Year

Open the next encumbrance year

Open the next budget year

Run Year-End Carry Forward with Preview Option set to YES

Review the Carry Forward Report showing proposed carry forward accts and amounts

Run Year-End Carry Forward with Preview Option set to NO

Review the Carry Forward Report with the updated balances

Run Encumbrance Trial Balance for audit trial of new encumbrance position

Section 6Important Terms Used in Encumbrance Accounting

Commitment:An encumbrance entry of the type commitment is created by a requisition in PO module. This is created when a requisition is approved & reserved. The requisition amount created is called a commitment. This requisition amount is deducted from the Budget.

Obligation: A Purchase Order creates an encumbrance of the type obligation. This is created when a Purchase Order is approved & reserved. The PO amount is called an obligation. This PO amount is deducted from the Budget.

Encumbrance Types:Encumbrance type classifies and track expenditures according to the purchasing approval process. Users can define encumbrance types in addition to the General Ledger standard encumbrance types or disable existing encumbrance types. There is no specific validation for the Encumbrances type. The main reason for defining Encumbrances type would be to distinguish expenditures blocked at what level that is at the time of creating of Requisition or Raising of Purchase order or at the time of approval of invoice. One specifies an encumbrance type when one enters an encumbrance and when one perform inquiries.

Encumbrance Entry: An encumbrance entry is created when users reserve a requisition or a PO or create an unmatched invoice the type of encumbrance created is either a Commitment or Obligation. This creates an encumbrance entry in the interface table called the GL_BC_PACKETS. One can enter encumbrances only in the functional currency

Reversal Of An Encumbrance Entry: Whether the system accrues expenses on receipt of goods or on processing of invoices, the system creates expense distribution lines from purchase order lines at the appropriate time and automatically relieves the purchase order encumbrance. Users can also relieve encumbrances manually in General Ledger. To do so, users must make a reversal encumbrance entry. The action of nullifying the encumbrance is called De-encumbering.

Following are different scenarios: -a) Cancel a PO or a Requisition or an Invoice?

b) Return or Reject a PO or a requisition

c) Finally close a document

Funds reversal occurs when documents are cancelled or finally closed. Negative debit entries are created to the respective accounts to nullify the encumbrance. When the above occurs reversing transactions occur which de-encumbers the previously created encumbrance transactions. The encumbrance entries get relieved on reversal of the journal entries.

When you make changes against the price or the quantity of the PO/Requisition.

Users can make changes to a purchase order for which funds have already been reserved (or encumbered). Temporarily unreserving the document, making the desired changes, and reserving the document again can do this. The unreserved action takes place at the header level only; it affects all lines on a purchase order, and changes the document's status to Requires Reapproval.

Note: Users have to make sure that the Unreserve Date falls within an open reserve period.

Budget Accounts: Budget Accounts are defined as accounts against which pre-allocated amount or budget is specified. This could be at the Summary level or the detail level.

Carry Forward Of Encumbrance Accounts: Perform yearend processing to identify outstanding purchase order and requisition encumbrances, to cancel some or all of these encumbrances, and to carry forward encumbrance, budget, and funds available balances into the new fiscal year. Users can carry forward encumbrances into the next fiscal year. Users can also carry forward an equivalent budget amount or funds available. If they do not carry forward encumbrances, they might want to cancel existing requisitions and purchase orders behind the encumbrances. Users can easily identify purchase orders and requisitions behind encumbrances.

When Users carry forward yearend encumbrances, the Carry Forward rule specified determines how General Ledger calculates the amount to be carried forward. Note that General Ledger carries forward encumbrances, not as period activity, but as beginning balances.

Users can choose one of the following Carry Forward rules:

Encumbrances Only: General Ledger calculates the year-to-date encumbrance balance as of the end of the year and carries that balance forward into the beginning balance of the first period of the next fiscal year.

Encumbrances and Encumbered Budget: General Ledger calculates the year-to-date encumbrance balance as of the end of the year and carries forward that balance, plus an equivalent budget amount, into the beginning balance of the first period of the next fiscal year.

Funds Available: General Ledger calculates the funds available as the year-to-date budget balance less year-to-date actual and encumbrance balances. General Ledger then carries forward that amount into the beginning balance of the first period of the next fiscal year.

Users can print a preview report to view the effects of a year-end carry forward before Users initiate the carry forward process. If users do not use the YearEnd Carry Forward window to carry forward encumbrances at the end of the fiscal year, all encumbrances automatically go to zero. Users can execute yearend carry forward a number of times for different ranges of accounts and different encumbrance types.

Encumbrance Reconciliation: Encumbrance journals created by sub-ledgers (Especially Payables & Purchasing) should be reconciled on a regular MONTHLY basis. Without monthly reconciliation, encumbrance issues are usually identified at an organization's year-end when funds and time are very limited.

Encumbrance Reconciliation Tips:

Payables encumbrances should clear to zero each period.

Purchasing encumbrances in the ledger should balance to the Encumbrance Detail report in Purchasing.

If they do not:

1) Ensure that the Program - Create Journals and Payables Transfer to ledger have been run. Post all encumbrance entries.

2) Check for outstanding rows in the gl_bc_packets table. Please note that unposted entries in the ledger can NOT clear the gl_bc_packets table until they are posted.

Funds Available: Funds Available = Budget (Actual Expenses + Encumbrances)

Funds available are the amount of Funds, available to be encumbered. The difference between the amount that are authorized to spend and all actual and anticipated expenditures. In other words, funds available are the amount budgeted less actual expenses and encumbrances of all types. Oracle provides the facility to let users check funds available online for requisitions, purchase orders, and invoices.

When a user enables budgetary control on the set of books and enables encumbrances on requisitions, purchase orders and or invoices this enables the functionality of the "funds checker" (a library owned by GL). This library inserts records into the table gl_bc_packets whenever a calculation might affect the funds available. If Users do not use requisition encumbrance, then funds checker cannot kick off and there can be no records in gl_bc_packets.

When Users inquire on funds available, the amount type Users specify determines how General Ledger calculates funds available.

Table 1 displays how the system calculates the funds availability in different scenarios.

Table 1: Scenarios for computation of Funds Available

Amount TypeHow the System Calculates Funds Available

PeriodtoDate

Calculates funds available as the budgeted amount for the period, less actuals and encumbrances for the period.

QuartertoDate

Extended

Calculates funds available as the budgeted amount to date for the quarter, less actuals and encumbrances to date for the quarter. For example, Users budget $100 to an account for each of the three months in a quarter. The available amount for the second month of the quarter is $200.

QuartertoDate

Extended

Calculates funds available as the budgeted amount to date for the quarter, less actuals and encumbrances to date for the quarter. For example, Users budget $100 to an account for each of the three months in a quarter. The available amount for the second month of the quarter is $200.

YeartoDate Extended

Calculates funds available as the budgeted amount to date for the year, less actuals and encumbrances to date for the year. For example, Users budget $100 to an account for each of the 12 months. The available amount for the first half of the year is $600.

ProjecttoDate

Calculates funds available as the budgeted amount to date, less actuals and encumbrances to date.

Section 7Important Tables Used for Encumbrance

The following tables are used for the encumbrance transactions.

GL_BC_PACKETS

GL_BC_PACKET_ARRIVAL_ORDER:

GLBV_ENCUMBRANCE_BALANCES

GLBV_ENCUMB_JOURNAL_BATCHES

GLBV_ENCUMB_JOURNAL_ENTRIES

GLBV_GL_ENCUMBRANCE_TYPES

GLFV_ENCUMBRANCE_BALANCES

GLFV_ENCUMB_JOURNAL_BATCHES

GLFV_ENCUMB_JOURNAL_ENTRIES

GLFV_GL_ENCUMBRANCE_TYPES

GL_ENCUMBRANCE_TYPES

GL_ENCUMBRANCE_TYPES_CURRENT_V

GL_ENCUMBRANCE_TYPES_V

RG_ENCUMBRANCES_V

General Ledger Encumbrance - Setup and Usage

August 2006

Author: Vaideeswaran Subramanian, ISC

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