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Release 11i: Release 11i: Encumbrance Encumbrance AccountingAccounting

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Agenda

Functional Overview to Encumbrance Accounting.

Setting Up Encumbrance Accounting

Technical Details

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Functionality

Educational institutions (Universities & Public School Boards) and

government agencies (Federal, Provincial & Municipal) use encumbrance accounting to:

Track spending by departments before an actual invoice is received.

Ensure that departments don't exceed their budget or are made immediately aware when they do

Plan the timing of actual expenditures

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Encumbrance Types

Oracle heavily integrates encumbrance functionality into its purchasing, payables and ledger modules. To differentiate between the different modules and associated transactions, encumbrances are normally referred to by different terms:

Budget (GL)

A budget entry is not an encumbrance; however, it represents the beginning of the encumbrance process.

Commitment (PO)

A commitment is solely associated with a requisition. A commitment is generated to an account when a requisition is approved.

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Contd.Purchase Obligation (PO)

A purchase obligation is associated with a purchase order. When funds are reserved on a purchase order, a purchase obligation is created.

Invoice Obligation (AP)

An invoice obligation is associated with an invoice. Within Oracle, an invoice obligation is generated to an account when an invoice is approved.

Actual (AP, GL)

An actual is not an encumbrance; however, it does represent the culmination of the encumbrance process.

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Funds Balance

The simplest overview of an account's current balances can be found within the Funds Inquiry form

Nev: GL-> Inquiry->Funds. The funds inquiry form essentially shows the basic encumbrance formula.

Funds Available = Budget Funds - Encumbrances - Actuals

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Funds Check Types Oracle applications implement three levels of funds checking: Absolute Users are prevented from processing a given transaction until funds

are added or transferred to the account failing a funds check. Alternatively, a user within a budgetary control group will be able to process the transaction if the amount of the funds shortfall is less than their budgetary control group's Override amount.

Advisory Users are notified with a message window informing them that the

transactions failed funds check; however, the transaction is still processed normally.

      None While encumbrances are still tracked, users aren't notified or

prevented from processing any given transaction.

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Encumbrances flow through most of the procurement process; that is, from the initial requisition of a product to the posting of journals for an approved invoice.

While considerably more complex examples exist, encumbrances always have the following characteristics:

  As a transaction moves through the various procurement stages, the encumbrances will move along with it. (See shaded cells.)

All encumbrances represent an intermediary stage of the procurement process. When the procurement process is complete for any given transaction, the related encumbrance balances should always be zero.

The following table shows a basic encumbrance cycle:

The Encumbrance ProcessThe Encumbrance Process

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To accommodate its clients' requirements, Oracle has integrated a highly flexible budgetary control environment into its financial applications.Funds checking can be implemented at the following levels:

Individual Account Level Summary Account Level Budgetary Control Group Level

Budgets & Encumbrances : Budgets & Encumbrances : SetupSetup

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Step 1: Setting Up GL Set up the Reserve for Encumbrance account. The Reserve for Encumbrance is

a liability account that acts as the offset to all encumbrance journals. Define a value within the liability range. The account should be enabled and of the liability account type

Navigate to Setup \ Financials \ Key \ Values. Find the following

Setting Up Encumbrance Setting Up Encumbrance AccountingAccounting

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Turn on funds checking for your accounting structure (set of books). Within the Budgetary Control Options, set 'Enable Budgetary Control' to Yes. This will enable funds checking within the GL, AP and PO modules.

If you would like an audit trail for budgetary transactions, also set 'Require Budget Journals' to Yes. The advantage to setting this option to 'Yes' is that budgetary transactions can be tracked; the disadvantage is that the related journals add additional data to the database

Navigate to GL: Setup \ Financials \ Books.

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The following encumbrance types are highly recommended:  Commitment - An encumbrance your record when a requisition is created. PO Obligation - An encumbrance you record when a purchase order is

created. Invoice Obligation - An encumbrance you record when an invoice is created.Create additional encumbrance types by navigating to GL: Setup \ Journal \ Encumbrances.

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Define any necessary budgetary control groups by navigating to Define any necessary budgetary control groups by navigating to

GL-> Budgets -> Define -> Controls.GL-> Budgets -> Define -> Controls.

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Define your budget by navigating to.Define your budget by navigating to.

GL-> Budgets -> Define -> Budget.GL-> Budgets -> Define -> Budget.

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Define your budget organizationsDefine your budget organizations

GL-> Budgets -> Define -> OrganizationsGL-> Budgets -> Define -> Organizations

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Enable encumbrances within PO.

Assign the encumbrance types from step C to the various encumbrances. Once again, a unique encumbrance type of Invoice Encumbrances is highly recommended.

Navigate to PO: Setup \ Organizations \ Financial Options.

Step 2: Setting Up POStep 2: Setting Up PO

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Examine the Invoice Approvals by navigating to

While not mandatory, it is recommended that all invoice approvals be set to non-postable. This setup facilitates user understanding of encumbrances, as funds won't be effected until an invoice is fully approved.

Navigate to AP: Setup\Invoice\ Invoice Hold and release Name.

Step 3: Setting Up APStep 3: Setting Up AP

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Encumbrance Reservations are created in GL_BC_PACKETS While Encumbrance reversals are created in - MTL_TRANSACTION_ACCOUNTS ( Accounting_line_type

= 15 ) - RCV_RECEIVING_SUB_LEDGER ( Actual_Flag =‘E’)

Technical Aspects:Technical Aspects: