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Section 1Purpose, Scope and Application
Section 2 INTRODUCTION
2.1Encumbrance:
2.3Usage:
2.5Prerequisites:
4.1.4Define Budget
4.2.1Enable Encumbrance
Section 5 USAGE
5.0Entering Budget
5.1.1Purchasing
5.1.2Payables
5.1.3General Ledger
5.2Reviewing Encumbrances in GL
Encumbrance plays a key role in Oracle Accounting System. This is one of the least
understood aspect of Oracle accounting software i.e. EBS. 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:
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.
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 over–expenditure of a budget. After actual and
encumbrances have been posted, users can generate reports to show over–
expenditures. Users can also use funds checking to prevent over–expenditures before
they occur.
Oracle Purchasing
2.5Prerequisites:
Assign the Set of Books in the other modules (Purchasing and Payables)
Enable Budgetary Control in SOB.
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).
The setups for encumbrance are done in the following modules as described below
On selecting the check box requires users to enter the code combination for Reserve
for Encumbrance Account column, which is available on this region.
Assign the Code Combination for the Reserve for Encumbrance Account
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.
4.1.4Define 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.
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.
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.
Description: Figure 5 displays the Define Budget Organization window. The above
window is discussion in point no. 4.1.5
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:
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.
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.
Description: Figure 7 displays the Budgetary Control Groups window. The above
window is discussed in point no. 4.1.7
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.)
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.
Go to Encumbrance Region.
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
Reviewing Encumbrances in GL
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 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
5.1.1Purchasing
Encumbrance can start from Purchasing. To have the full cycle of encumbrance, we
need to create the following
5.1.1.1Requisition
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.
Document
Expense DR
Expense CR
RFE DR
RFE CR
Req Reserve
1000
1000
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
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.
Document
Expense DR
Expense CR
RFE DR
RFE CR
Req Reserve
1000
1000
PO Reserve
1000
1000
Req Unreserve
1000
1000
Figure 14: Auto-create a Purchase order for the requisition that was created
earlier
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
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:
Document
Exp Dr
Exp CR
RFE DR
RFE CR
REC DR
REC ACC DR
REC ACC CR
PO Reserve
1000
1000
PO Enc Relief
1000
1000
Charge Accnt
1000
1000
Figure 17 does not show any accounting entries because the accrue at receipt is not
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.
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.
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.
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.
Document
Exp Dr
Exp CR
RFE DR
RFE CR
AP Accrual DR
AP Accrual CR
PO Enc Relief
1000
1000
1000
1000
1000
1000
Charge Accnt
1000
1000
Figure 19 shows the Invoice that has been created by Matching PO 2548 and is also
validated.
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.
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)
The source of the journal can be Encumbrance, which cannot be modified. Choose the
appropriate category and enter the journals.
Users can run Journal Import Program to create journal entries for the Encumbrance
transactions entered in other modules.
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
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.
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.
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.
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.
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.
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
CrAccrual (-ve)
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:
Users can also relieve encumbrances manually in General Ledger. To do so, Users
must make an encumbrance entry.
Enter the Period to which to reverse the original encumbrance entry. The default
period is the current accounting period.
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.
When users carry forward year–end 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.
Run Encumbrance Details Report to review purchase orders and requisitions behind
encumbrances
Run Encumbrance Trial Balance for audit trial of encumbrance before year-end carry
forward
Review the Carry Forward Report showing proposed carry forward accts and amounts
Run Encumbrance Trial Balance for audit trial of new encumbrance position
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.
When Users carry forward year–end 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.
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 Year–End
Carry Forward window to carry forward encumbrances at the end of the fiscal year,
all encumbrances automatically go to zero. Users can execute year–end carry
forward a number of times for different ranges of accounts and different
encumbrance types.
If they do not:
Ensure that the Program - Create Journals and Payables Transfer to ledger have been
run. Post all encumbrance entries.
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.
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.
Amount Type
Period–to–Date
Calculates funds available as the budgeted amount for the period, less actuals and
encumbrances for the period.
Quarter–to–Date
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.
Quarter–to–Date
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.
Year–to–Date 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.
Project–to–Date
Calculates funds available as the budgeted amount to date, less actuals and
encumbrances to date.
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
GAURAV LAL
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COMMENTS
0balkrishna 2015-03-16 13:18
Nice Article ...To the Point and Detail Insight to functionality ...
Quote
0Rajesh 2015-07-15 05:45
Encumbrance Accounting
Quote
0Haitham 2015-07-23 13:52
Very good article, so in R12 I have to create the invoice and transfer to GL to hit
the actuals, correct?
Quote
0Richie 2015-11-05 14:46
what if the did not do the carry forward and close the period and continue with the
next year and later after 1 year, if we want to mass cancel the previous year
requisitions?
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