Release 11i:

Encumbrance
Accounting

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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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 The Encumbrance Process
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:

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 Budgets & Encumbrances :
Setup
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

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 Setting Up Encumbrance
Accounting
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

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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
GL-> Budgets -> Define -> Controls.

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 Define your budget by navigating to.
GL-> Budgets -> Define -> Budget.

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 Define your budget organizations
GL-> Budgets -> Define -> Organizations

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 Step 2: Setting Up PO
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.

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 Step 3: Setting Up AP
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.

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 Technical Aspects:
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’)

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