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General Ledger encumbrance accounting

Setups
1.1 Define Reserve for Encumbrance account for each set of books.
When you post encumbrance transactions, General Ledger automatically posts offset amounts to this account.

1.2. Enable Budgetary Control for your set of books to automatically create encumbrance entries from Oracle Purchasing and Oracle Payables.
owever, you need not define budgetary control options for your detail or summary accounts nor must you define budgetary control groups.

2. Open encumbrance years to enter and post encumbrance entries to future periods. Your initial encumbrance year is opened automatically when you open your
first period for your set of books. General Ledger uses the last period of your latest open encumbrance year to determine how far to calculate your project-to-date
encumbrance balances.

3.1 Define Encumbrance Types

3.2 Define Budget
3.3 Define Budget Organization
3.4 Define Budgetary Control Groups
3.5 Assign Budgetary Control Groups

4. Define financial encumbrance options in Purchasing and Payables in the Financials Options window.

Process
1. Entering Budget
Budget entries can be entered either through the Enter Budget Amounts form or through the Enter Budget Journals form.
Budget journals needs to be posted to GL.

2. Encumbrance Accounting Flow from Purchasing

Requisition Encumbrance
You may enable this option to encumber funds for requisitions. If you enable this option, Purchasing creates journal entries and transfers them to General Ledger to
encumber funds for purchase requisitions.

If you enable Use Requisition Encumbrance, you must select an encumbrance type by which you can identify your requisition encumbrance journal entries. Purchasing
assigns this encumbrance type to the encumbrance journal entries it creates for purchase requisitions. If you enable Use Requisition Encumbrance, you can indicate
whether you want requisition preparer to have the option to reserve funds. If you do not enable this option, only requisition approvers will have the option to reserve
funds.

PO Encumbrance
Enable this option to encumber funds for purchase orders, purchase order and receipt matched invoices, and basic invoices (not matched). If you enable this option,
Purchasing encumbers funds for purchase orders and Payables encumbers funds for variances during Payables Invoice Validation for purchase order and receipt
matched invoices. If you enable this option and enter a non-purchase order matched invoice, Payables will encumber funds for it during Payables Invoice Validation. All
Payables encumbrances are reversed when you create accounting entries. If you enable Use Requisition Encumbrance, you must also enable this option.

If you enable Use Purchase Order Encumbrance, select a purchase order encumbrance type by which you can identify your purchase order encumbrance journal
entries. Purchasing assigns this encumbrance type to the encumbrance journal entries it creates for purchase requisitions and purchase orders. If you use purchase
order encumbrance, select an invoice encumbrance type by which you can identify your invoice encumbrance journal entries. Payables module assigns this
encumbrance type to the encumbrance journal entries that it creates. It is recommended that you use an encumbrance type different from the Purchasing
encumbrance type so you can identify invoice encumbrances

2.1 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

2.2 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)

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Encumbrance Type = PO (Purchase Order)
CCID = CCID given in PO Distribution

2.3 Receiving 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.

3. Payables
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.
3.1 Enter 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.

3.2 Entering 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)

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