1638_encumbrance accounting in oracle ebusiness suite

8/3/2019 1638_Encumbrance Accounting in Oracle Ebusiness Suite

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Encumbrance Accounting & Oracle e-business suite

UKOUG 2004

Leverage features of Encumbrance Accounting in

Oracle e-business suite

Tarun WasanAccenture


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UKOUG 2004

Agenda

Encumbrance - Concept

Encumbrance Footprint

Accounting Cycle Encumbrance in Sub Ledgers

Encumbrance Year End

Reports and Inquiry

Q&A


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Oracle e-business suite an Integrated Application

Seamless and tight integration between

modules

Common data shared across application

modules :- personnel information from HRMS shared

with financials Integration with external applications through Open

Interfaces -

- interface with customer data base,

- Third party data capture systems,

- standardised downloads for reporting Integrated with Internet based application

Service

Financials

HumanResources

Procurement

Marketing

Sales

SupplyChain

OrderManagement

Information In A Single Database


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Reservation of funds is known as encumbrances. The primary

purpose of tracking encumbrances is to avoid overspending a budget.

Encumbrance accounting = To control spending against budgeted

amounts. To record anticipated expenses / Liabilities as soon as they

happen.

Encumbrance Journals Increase / Decrease the funds available

balance.

Encumbrance?


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Oracle PayrollOracle

Accounts

Payables

OracleGeneral Ledger

OracleOrder Entry

ExternalSystems

OraclePurchasing

OracleInventory

Oracle Assets

Set of BooksExchange Rates

InvoicesPayments

OracleReceivables

OracleSales

Compensation

DepreciationAsset Transaction





AccruedReceipts

COGSInventoryActivityWIP Activity

Payroll Activity


Set of BooksExchangeRates

InvoicesCash ReceiptsAdjustments


Journals

CommissionsApproved

OracleSales AndMarketing

GL PeriodsFor Forecating


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Oracle e-business suite Encumbrance footprint

Journal Entries

Invoices Payments

Journal Entries Invoices Receipts

Journal Entries

Additions/Retirements Depreciation Adjustments

Journal Entries Accrued Receipts

Journal Entries Inventory/

WIPactivity

Journal Entries Payroll

Journal Entries Revenue Labor Costs Usage Costs

Accounts

Payables

Inventory

AccountsReceivables

Project

Accounting

Purchasing

Human

Resources

Fixed Assets

GENERAL

LEDGER

EncumbranceEnabled

No Encumbrance

Enabled


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Encumbrance Cycle

Enter Manually/

Mass Allocations

Import - Purchasing

& Payables

PostEncumbrances

CreateEncumbrances

ReserveFunds

Review FundsAvailable

Year end

Encumbrance

Open Encumbrance

Year

Enable BudgetaryControl and

Create Budgets


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Funds Available

Budget Balances

Actual Balances

EncumbranceBalances

Oracle GeneralLedger

OracleE-Business

Suite

The following equation always holds true:-

Funds Available = Budget (Actual + Encumbrance)


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In Payables

4) Enter invoice

Complete by entering invoice number, date and amount. Navigate to match and in the find screen the PO number will be displayed, if not correct

Navigate to find. The PO information will be displayed. Flag the lines and select Match.

PO distributions lines will be copied to Invoice distributions.

Approve invoice.

5) Transfer to GL

Select the Payables Transfer to General Ledger. Complete parameters and submit request. This will transfer all journal lines created in AP to GL.

In General Ledger

6) Review actual and encumbrance journal entries.

To complete the process run the concurrent program: Create Journal Entries in General Ledger. This will create the journal entries out of

transactions that pass funds reservation from Purchasing and Payables. This program creates the entries that represent the movement formObligation to commitment to other. This will result in un-posted entries in GL.

The entries should be debit to the expense account and credit to the payables control (liability) account.

Find the journal and select Review Journal. The entry at this point is a single sided credit entry to the expense account. The debit entry is to the

encumbrance account that has been defined in the set of books :Reserve for encumbrances account will be created at posting.


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Purchasing Encumbrance

PeriodEnd Accruals and Encumbrance

For periodend accruals when using encumbrances, Purchasing creates

a reversing entry for the encumbered amount corresponding to an expense while

creating an accrual entry for the receipt in the general ledger. When you accrue

your receipts, Purchasing ensures that you do not duplicate entries for the period.

At the beginning of the following period, you reverse the accrual entry for the

expense and recreate the encumbrance entry you reversed in the previous periodusing General Ledger.

If you use non-recoverable or partially recoverable tax, the Non-recoverable tax

amount is included in your encumbrances.

Inventory and Perpetual Expense Accruals and Encumbrance

For perpetual expense and inventory accruals, Purchasing and Inventory create a

reversing entry for the encumbered amount at the time you deliver the goods to the

final inventory or expense destination. When an invoice is matched to a purchase

order and approved in Payables, it is not necessary for Payables to record an

encumbrance for the expense. However, Payables will record an encumbrance for

invoice price variance or exchange rate variance, if the variance exists.


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Requisition Encumbrance Cycle

Create Req

Submit for ApprovalApprove requisition

Autocreate Requisition

onto PO

Approve PO

Debit Expense

Credit RFE

Req Encumbrance

Reversed

Debit Expense

Credit RFE PO

Reject @ Approval

Return to Requestor

Cancel PO Final Close PO

Control Cancel Req

Reverse ExpenseDebit and RFE

Credit -ve posting

Final Close Req

Credit Expense

Debit RFE

Credit Expense

Debit RFE

Reverse Expense

Debit and RFE

Credit -ve posting

Credit Expense

Debit RFE

Credit Expense

Debit RFE


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Purchase Order Encumbrance Cycle

Requisition encumbrance are relieved when Requisitions are converted to PO.

At this stage, the purchase order encumbrance cycle is initiated depending on the

type of purchase order document raised.

Broadly, a purchase order document creates an encumbrance to debit expense and

credit the reserve for encumbrance account.

Blanket PO

Contract PO

Planned PO


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Blanket PO Encumbrance

Create Blanket PO

Submit for ApprovalApprove Blanket PO

No Encumbrance

Generated

Create a Blanket PO

release

Approve Blanket PO

Release

Debit Expense

Credit RFE

Create Contract PO

Submit for ApprovalApprove Contract PO

No Encumbrance

Generated

Create a Standard PO

referencing ContractApprove Standard PO

Debit Expense

Credit RFE

Contract PO Encumbrance


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Planned Purchase Order

Create a Planned PO

submit for approvalApprove Planned PO

Debit Expense

Credit RFE

Create a Planned

PO scheduled release

Approve scheduled

release

Credit Expense

Debit RFE for

release amount PPO

Debit Expense

Credit RFE RE

Cancel scheduled

release Reverse Expense

Debit and RFE

Credit -ve posting

Approve scheduled

release

Credit Expense

Debit RFE


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Relieving encumbrances

On receipt of goods or matching invoices against approved POs, Oracle

accrues expenses and relieves PO encumbrance.

Manual option to create or relieve encumbranceCreate EncumbranceJournal directly in GL.

Accounting entries for the Encumbrance journal category record

encumbrances, exchange rate variances, and invoice price variances.


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Budgetary Controls in PayablesIfyou use Oracle General Ledgers Budgetary Control feature, you can check funds

before you save a transaction and you can have the Invoice Validation processautomatically create encumbrances to reserve funds for your transactions. For

example, when you enter an invoice, you can use the Funds Check program to check

if you have available budgeted funds to pay for an invoice or invoice distribution.

If you select absolute budgetary control in General Ledger, then Invoice Validation

places an Insufficient Funds hold on any invoice that fails funds checking. If you use

advisory budgetary control, Payables allows the invoice to pass Invoice Validation,

even if it fails funds checking. During Invoice Validation, Payables creates

encumbrances to reserve funds against the budgets you define in Oracle General

Ledger. When you create the accounting entries for the transactions, it relieves the

encumbrances.

As the final step of budgetary control in Payables, if you enable Use POEncumbrance in the Financials Options window, Oracle Purchasing automatically

creates encumbrance entries to reserve funds for invoice expenditures against the

budgets you define in Oracle General Ledger. Funds checking and budgetary control

include non recoverable tax as part of the item cost to fully recognize the

commitment because non recoverable tax becomes part of the acquisition cost of the

item.


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Encumbrance in Payables

Purchasing and Payables create encumbrances and encumbrance reversals againstthe budgets defined in General Ledger.

Encumbrance with Accrual Basis Accounting

The encumbrances Purchasing and Payables create depend on whether

the invoice is purchase order matched and whether On Receipt

(Perpetual) or Period End Accrual method is used.

Unmatched Invoice: If you enable the Use PO Encumbrance Financials option andenter an unmatched invoice, Payables creates an expense encumbrance during

invoice validation and reverses this encumbrance during creation of invoice

accounting entries.

Matched Invoice, On Receipt (Perpetual) Accrual

If using On Receipt Accrual method for expense items in Purchasing,

Purchasing creates an encumbrance for the goods when the

purchase order is approved, then reverses that encumbrance when it

records the actual expense at the time of delivery of goods. When

the invoice is matched to a purchase order and validated in

Payables, it is not necessary for Payables to record an encumbrance for the expense

E b A i & O l b i i


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Encumbrance in Payables

Matched Invoice, Period End Accrual: If you use the Period End Accrualmethod for your expense items in Purchasing, Payables reverses the PO

encumbrances. When the invoice is matched to a purchase order and validated

in Payables, Payables records an encumbrance for the expense only if the PO

Encumbrance Type and the Invoice Encumbrance Type in the Financial Options

window are the same. Payables creates an encumbrance for any quantity

variance, invoice price variance, or exchange rate variance even if the PO

Encumbrance Type and the Invoice Encumbrance Type are the same.

Encumbrance with Cash Basis Accounting

If you use the cash basis accounting method, Payables creates encumbrances

during Invoice Validation and relieves them during create payment accounting

entries. Payables prorates your encumbrance reversal based on the invoice

payment amount. Payables reinstates the invoice encumbrance when payment

is cancelled.

Encumbrance with Combined Basis Accounting

If you use the combined basis accounting method, Payables creates

encumbrances for your primary accrual set of books only.

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When using Summary Template Budgetary Control

1. At Budget Organisation level have funds check at advisory / None

2. At Summary template level have absolute.

3. Therefore if insufficient funds exist for a particular account but the amount is still under the summary

level you can proceed.

E.g. Rent = 1000

Rates = 1000

Water 1000

Total 3000

Therefore as long as the invoice / PO is less than 3000 you can reserve the funds against any of the three

accounts.

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Notes: -

1. Assign Reserve for Encumbrances account to your SOB

2. Enable Budgetary control for your SOB

3. Open Encumbrance year

4. Set up Budgets as per normal

5. Set up Budget Organisations ensuring that if you are using encumbrances and budgetary control for ranges ofaccounts:-

A.Automatic encumbrance accounting box (to create Journal entries from your Feeder systems (Payables / Purchasing)

B.Select funds check level (Advisory / Absolute)

C.Amount type

D.Boundary

E.Funding budget against which you want GL to check or reserve funds (Must be Journal entry budget type)

3. Enter Budget Journals

4. Create Summary Journals to total ranges of accounts5. Enable Encumbrances in Payables financial options

Encumbrance Accounting & Oracle e business suite


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Year End Encumbrance Sub Ledger

Identify outstanding encumbrances in Purchasing to determine whether to cancel or carry

forward.

Review PO and Requisition encumbrances using a couple of standard reports:

- Encumbrance Details Report

- Open Encumbrance Balance with Transaction Detail Report

- Define Mass Cancel criteria to select encumbrances to be cancelled

- Run Mass Cancel

- Post encumbrances after running Journal Import in GL

- Review the Encumbrance Trial Balance Report in GL

- Close last period of the current fiscal year.

- Open first period of the next fiscal year.

- Open next encumbrance year

- Open next budget year.

- Carry forward year end encumbrances



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Year End Encumbrance General Ledger

General Ledger carries forward year end encumbrances into the following year asbeginning balance.

Choose from the following carry forward rules:

1.Encumbrance Only :- GL calculates the YTD encumbrance balances as at the

end of a fiscal year and carries forward those balances as the beginning balance ofthe next fiscal.

2.Encumbrance and Encumbered Budgets :-GL calculates YTD encumbrance

balances as at the end of a fiscal year and carries forward the encumbrance

balance plus an equivalent budget amount, as beginning balance of the first

period in the next fiscal year.

3.Funds Available :- GL calculates funds available as year to date budget balances

less YTD actual and encumbrance balances. GL carries forward budget amounts

equal to funds available at the end of the fiscal year as beginning balances of the

first period of the next year.



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Budgetary Control, Funds Checkingand Encumbrance

Questions often asked ?

Automatic Encumbrance journals from the sub ledgers are only created

when the budgetary control flag is enabled for the set of books.

Can encumbrance be enabled without allowing budgetary control for the set of books?

If you make entries to an account that funds has been budgeted to, the summary level checking feature works.

However, if you choose another account combination in the range and enter expenditures under the Summary Budget Amount, you

receive an error message.

Funds level check at the Budget Organization level should be set to ADVISORY or NONE if funds level checking of ABSOLUTE is

done at the summary level. If you have absolute set at more than one level, then a transaction must pass

all levels or it will fail.

Note: - Budgetary control / Funds check only works for those account ranges that have been defined in Budget

Organisations with budgetary control / funds check levels defined. Even if no budget amounts have been assigned tothese accounts budgetary control / funds check will still take place when an invoice is entered and approved.

For those accounts / account ranges that have no encumbrance / funds check levels assigned to them, you will be able to

create invoice distribution amounts against, whatever the amount, and it will approve the Invoice.

Note: - If you create a budget org with segment values 0000 ZZZZ for all segments and apply budgetary controls /

funds check levels you will have funds check for all accounts.

No drill downs on Encumbrance JVs from GL to sub ledgers



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Encumbrances Report

Standard Reports

Purchasing:Requisition Distribution Detail Report

Purchase Order Distribution Detail Report

Encumbrance Detail Report

General Ledger:Encumbrance Trial Balance Report

General Ledger Report

Accounts Analysis Report

Other Options:

FSG reportsOnline inquiry



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Tarun Wasan

email: [email protected]

Leverage features of Encumbrance Accountingin Oracle e-business suite

THANK YOU

Q&A?

1638_encumbrance accounting in oracle ebusiness suite

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