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An Oracle White Paper
May 2014
Encumbrance Accounting in the Procure to Pay

Flow: Best Practices
Encumbrance Accounting in the Procure to Pay Flow: Best Practices
Executive Overview ..................................................................................................... 3

Introduction ................................................................................................................. 4
Encumbrance Accounting Procure-to-Pay Overall Process Flow ............................ 6
Encumbrance Accounting Procure to Pay with Journal Entries ............................... 7
Creating Budgets .................................................................................................... 7
Purchase Requisitions Approval and Reserve ........................................................ 9
Purchase Order Reservation & Approval .............................................................. 10
Changes to PO: Increase quantity or price through Revision ............................... 11
Changes to PO: Decrease Quantity or Price through Revision............................. 12
Cancellation of Quantities/Lines/Shipments in a Purchase Order ........................ 13
Receipt of Goods/Services .................................................................................... 13
Invoice Matched to PO .......................................................................................... 14
Invoice Payment .................................................................................................... 16
Technical Overview ................................................................................................... 17
Conclusion ................................................................................................................ 18
Appendix: Setup Overview ........................................................................................ 19
Setup in Oracle General Ledger ........................................................................... 19
Setup in Oracle Purchasing, Oracle Payables and Oracle Cost Management ..... 25
Setup in Oracle Inventory ...................................................................................... 26
Appendix: Common Customer Issues and their resolution ....................................... 29
Appendix: Important Tables used by Encumbrance Accounting ............................... 38
Appendix: Reference Documents / Notes related to Encumbrances ........................ 39
Table of figures:
Figure 1: Setting up Budget for Encumbrance Accounting.................................................... 8

Figure 2: Funds Availability after Budget Creation .................................................................. 8
Figure 3: Budget Position after Commitment ........................................................................... 9
Figure 4: Budget Position after Obligation.............................................................................. 11
Figure 5: Budget Position after PO Amount increase ........................................................... 12
Figure 6: Budget Position after Invoice Matching ................................................................. 16
Figure 7: Encumbrance Accounting Technical Overview .................................................... 17
Figure 8: Enable Budgetary Control ......................................................................................... 19
Figure 9: Sub-ledger Accounting Method................................................................................ 20
Figure 10: Define Budget ........................................................................................................... 21
Figure 11: Define Budget Organization ................................................................................... 21
Figure 12: Account Ranges ........................................................................................................ 22
Figure 13: Budgetary Control Options .................................................................................... 22
Figure 14: Budgetary Control Group ....................................................................................... 23
Figure 15: Profile for Budgetary Control Group .................................................................... 23
Figure 16: Open Encumbrance Year........................................................................................ 24
Figure 17: Define Encumbrance Types ................................................................................... 24
Figure 18: Define Financial Encumbrance Options .............................................................. 25
Figure 19: Enable Encumbrance in Oracle Purchasing and Oracle Payables .................... 26
Figure 20: Costing Information ................................................................................................ 27
Figure 21: Organization Parameters - Other Accounts ......................................................... 27
Executive Overview
Most organizations understand the need to use budgetary controls in their business processes. Budgetary
controls ensure that unnecessary and maverick spending is minimized or curtailed. Budgetary controls
ensure proper approvals for legitimate expenses and users do not overshoot the budgets specified for
their activities. It is a very useful tool to avoid unnecessary business transactions and expenses.
Encumbrance Accounting in Oracle e-Business Suite integrates the entire budgetary control lifecycle and
enables better control over expenditures incurred in organizations. With Encumbrance Accounting,
organizations can monitor the amount of money they spend, ensure that departments don't exceed their
budgets or are immediately notified if they do. It can also help predict cash flow balances more
effectively.
This paper will help users understand the concept of Encumbrance Accounting and how it can be set up
and used within Oracle e-Business Suite. The main focus of this white paper is to explain the
Encumbrance Accounting process from a Procure to Pay perspective.
Introduction
Encumbrance Accounting is a widely used business practice for managing expenses and ensures that
departments stay within budgetary expenditure targets. Encumbrance Accounting per se is a much wider
concept than a simple budgetary control. Encumbrance Accounting helps organizations stay within
budgets, so that it is easy for users and organizations to identify and report various business transactions
and how they impact cash flows. This white paper provides an overview of the Encumbrance
Accounting process used in Oracle E-Business Suite.
What is Encumbrance?
Encumbrance is a commitment to pay in the future, although the goods or services have been ordered,
however, they have not been received yet.
For a company, Encumbrance reserves the money for paying for goods or services in the future; the
amount is called Encumbrance. And the amount(s) will subsequently become expenditure when goods
and services are received.
What is Encumbrance Accounting?

Encumbrance Accounting is also known as Commitment Accounting. It deals with accounting for
expenses from the time that the intent to incur that expenditure becomes clear, that is, the commitment
to incur the expenditure becomes certain. Usually, the majority of spend in an organization happens in
the procurement process; when purchase requests are created and approved, there is a greater degree of
certainty about incurring that expense over a certain period. Encumbrance Accounting ensures that this
expense is accounted for, against the sanctioned budget, when the request is approved. This implies that
funds are set aside in accounting for meeting this expense which is not liable to be paid unless the
requests are received and billed. Encumbrance Accounting also ensures that a reduced budget is
available for other competing purchase requests. When the budget is completely utilized, it is no longer
possible to create fresh purchase requests.
What is Encumbrance Accounting in Oracle e-Business Suite?

Encumbrance Accounting ensures that money or budgets are set aside for meeting anticipated future
expenses. There may be multiple scenarios in the procurement process that use Encumbrance
Accounting: creation of purchase orders with backing purchase requisitions, creation of purchase orders
without a backing requisition, directly accounting for an invoice and paying it, without a backing
purchase order, etc. Encumbrance Accounting in Oracle e-Business Suite ensures that the money is
correctly set aside and appropriately accounted for during the entire procurement lifecycle.
Oracle Encumbrance Accounting Terms

The following terms are widely used while discussing Encumbrance Accounting, in this whitepaper.
COMMITMENT
Commitment implies the commitment to spend money in the future. In Oracle e-Business Suite, it
denotes reserving and accounting for money committed to be spent on a Purchase Requisition
document. Commitment happens on the approval of a Purchase Request document.
OBLIGATION
Obligation is the obligation on the part of an issuer of a purchase order or a contract to pay an amount
to a vendor, as per the terms and conditions and supply schedules of the purchase order or contract. In
Oracle e-Business Suite, it denotes reserving and accounting for money that will be required to pay for
goods and services contracted through a purchase order / agreement type of document. Obligation
takes place on the approval of a Purchase Order / Agreement.
ENCUMBRANCE ENTRY
An encumbrance entry is a journal entry that is created when you reserve a requisition or a PO or create
an unmatched invoice the type of encumbrance created is either a Commitment or Obligation.
Encumbrance journal entries are always created using the functional currency (that is, the currency of
the default operating unit).
BUDGET ACCOUNTS
These are accounts against which amounts are specified in a Budget that is created. These budgetary
Accounts can be specified at the summary level or detail level.
FUNDS AVAILABLE:
Funds Available = Budget (Actual Expenses + Encumbrances)
Funds available are the amount of Funds, available to be encumbered. It is the difference between the
amount you are authorized to spend and all actual and anticipated expenditures. In other words, funds
available are the amount budgeted less actual expenses and encumbrances of all types. Users can use the
Funds Check feature in purchase requisitions and purchase orders to review the available funds.
Benefits of Encumbrance Accounting

Using Encumbrance Accounting, the following benefits are available:
Enforces Control: Encumbrance Accounting works together with budgetary control,

monitors spending by departments, avoids overspending and enforces controls.
Increases Visibility: Encumbrance Accounting enables users to pre-allocate the

budget amount, track expenditure, and increase spends transparency.
Accelerates Planning Process: Encumbrance Accounting is used to predict cash

outflow and is also used as a planning tool to accelerate the planning process.
Encumbrance Accounting Procure-to-Pay Overall Process Flow

Encumbrance Accounting is closely integrated with the entire Procure-to-Pay (P2P) flow. It starts with a
purchase requisition and ends when actual expenditure is booked against an invoice. Encumbrance
Accounting in the Procure-to-Pay process is depicted in the diagram as follows:
Encumbrances flow throughout the procurement process; that is, from the intention to buy goods or
services, to procuring and receiving the goods or services, to the final step of incurring the actual
expenditure and making the payment. The following stages are basic Encumbrance Accounting activity
in the procure-to-pay process:
Creating and Approving a Purchase Requisition (Commitment Stage)
Creating and Approving a Purchase Order (Obligation Stage)
Creating and Approving Receipts / Invoices (Actual Stage)
This is business major processes for company buying goods or services. Along with that, Encumbrances
liquidate from one stage to the next.
An example for this business flow is as follows:
Business Transaction
Budget
Remaining
Commitment
Obligation
Actual
Budget Allocated for Expenditure $10000
10000
Purchase Requisition (PR) created for $

2000
10000
PR Approved
8000
2000
PR Auto-created to Purchase Order (PO)
8000
2000
Purchase Order Value changed from

$2000 to $ 2500
8000
2000
Purchase Order Approved
7500
(2000) -
2500
Invoiced received and matched against

PO for $ 1000
7500
(1000)
1500
1000
Initially, assume that a budget amount of $10000 is allocated for certain expenditure. Notice that when a
Purchase Requisition is created, there is no impact on Encumbrance. The commitment is recorded when
the Purchase Requisition is approved. If there are multiple approvers, it gets recorded at the time of the
final approval for the document. Once the commitment is created, it is not liquidated until the
Obligation is recorded.
Obligations are recorded when a Purchase Order is approved. Again, if there are multiple approvers, the
obligation is recorded at the time of the final approval for the PO. The obligation is always created for
the PO amount, irrespective of the backing commitments. While recording the obligation, any backing
commitments created through the backing PRs are liquidated. When receipts are created or invoice is
matched against a PO, the obligation is liquidated and the actual expenditure is recorded.
Encumbrance Accounting Procure to Pay with Journal Entries

In the following section, we will focus on the following flows:
Creation of Budgets
Purchase Requisition Approval & Reserve
Purchase Order Approval & Reserve
PO Changes: Increase or Decrease of Qty
PO Changes: Cancellation of Quantities/Lines/Shipments
Receipt of Goods/Services
Invoice Matched to PO
Payment to PO Vendor.
Creating Budgets
Encumbrance Accounting always works together with budgetary control. At the beginning of a fiscal
year, enterprises estimate how much they are going to spend in the future, based on business plans for
the forthcoming year. The planned expenditures under various heads is estimated and used to create
budgets. Enterprises can use this budget amount to compare it to actual expenditure at any time in order
to track and monitor actual spending.
In Oracle e-Business Suite, users can create budgets using the following steps:
1.
Login and select an appropriate General Ledger responsibility.
2.
Navigate to General Ledger > Budget > Enter > Journals
Figure 1: Setting up Budget for Encumbrance Accounting
3.
Enter a budget amount for specific accounts for each period.
Figure 2: Funds Availability after Budget Creation
Navigating to the Funds Availability Inquiry window, the budgets would now reflect as created. In this
example, the Budget was created for $20,000.
The next section describes how these budgets will be used and encumbrances created or liquidated in
various scenarios.
Purchase Requisitions Approval and Reserve

The following example outlines Encumbrance Accounting for recording commitments. The user intends
to buy some office stationery this month. The estimated amount is approximately $ 3,000.
Steps:
User creates a Purchase Requisition (PR) for $3,000. User ensures that the correct distribution account is
selected for the PR line.
The user performs the Funds Check action to ensure that sufficient funds are available
for reserving the money required for this purchase, against the Budget.
The user submits the document for approval and the approver approves the
document. The following are the accounting details:
Event Type
Requisition Reserve
Encumbrance Type
Commitment
Balance Type
Encumbrance
Journal Entry Date
Encumbrance Date as provided in the PR distribution
DEBIT
Budget Account from PR Distribution
CREDIT
Reserve for Encumbrance (Commitment)
$3,000
$3,000
Note: If there are multiple PR distributions for the PR line, each distribution is debited separately with
corresponding credit on the Encumbrance Date specified in the respective PR distributions.
The remaining budgetary funds are as follows:
Figure 3: Budget Position after Commitment
Purchase Order Reservation & Approval

After the Requisition is approved, the user can place the Purchase Requisition details in a Purchase
Order (PO) document.
Steps:
The user uses Autocreate process to create the Purchase Order document from the
Purchase Requisition.
The user submits the PO document for approval and the Approver approves the
Event Type
Requisition Un-Reserve
Encumbrance Type
Commitment
Balance Type
Encumbrance
Journal Entry Date
Encumbrance Date as provided in the PO distribution
DEBIT
Reserve for Encumbrance (Commitment)
CREDIT
Budget Account from PR Distribution
$3,000
$3,000
Event Type
Purchase Order Reserve
Encumbrance Type
Obligation
Balance Type
Encumbrance
Journal Entry Date
DEBIT
Budget Account from PO Distribution
CREDIT
Reserve for Encumbrance (Obligation)
$3,000
$3,000
Note: If the user creates the PO manually without the referenced PR, it can lead to the
duplication of reservation of funds for the same transaction. Further, if the PO line distribution
amount changes from $3,000 to $3,500, the commitment un-reserve will take place for $3,000
(backing PR distribution amount) and PO reserve will happen for $3500.
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The budgetary funds remaining will now reflect as:
Figure 4: Budget Position after Obligation
Changes to PO: Increase quantity or price through Revision

After the PO is approved, it is likely that the PO quantities / prices / amounts may be changed. A PO
revision is created in such situations in order to update these changes in the PO. The following example
explains the process of increased PO line amount. This action would also have a bearing on
Encumbrance Accounting:
Steps:
The user updates the PO and creates a new revision to change the line / shipments
quantity, price, amount etc. In this example, the user changes the quantity / price to
reflect in an increased amount of $500.
The user submits the PO revision for approval and the approver approves the
Event Type
Purchase Order Reserve
Encumbrance Type
Obligation
Balance Type
Encumbrance
Journal Entry Date

of the PO Revision
DEBIT
CREDIT
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$500
$500
The Budgetary funds remaining will now reflect as follows:
Figure 5: Budget Position after PO Amount increase
Changes to PO: Decrease Quantity or Price through Revision

This example explains the process of decreasing PO line amount. Again, this action would have a
bearing on Encumbrance Accounting:
Steps:
The user updates the PO and creates a new revision to change the line / shipments
quantity, price, amount etc. In this example, the user changes the quantity / price to
reflect in a decreased amount of $500.
The user submits the PO revision for approval and the approver approves the
Event Type
Purchase Order Un-Reserve
Encumbrance Type
Obligation
Balance Type
Encumbrance
Journal Entry Date

of the PO Revision
DEBIT
CREDIT
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$500
$500
Cancellation of Quantities/Lines/Shipments in a Purchase Order

It is possible that line/shipment quantities can be cancelled in a Purchase Order for various reasons.
These cancel actions also has an impact on Encumbrance Accounting:
Steps:
The user selects the approved PO and cancels a line or shipment, using the Cancel action. In
the original example, assuming that the PO is cancelled for $1,800, the following will be the
accounting entries:
Event Type
Purchase Order Un-Reserve
Encumbrance Type
Obligation
Balance Type
Encumbrance
Journal Entry Date

of the PO Revision for Cancellation
DEBIT
CREDIT
$1,800
$1,800
Receipt of Goods/Services
When goods or services in a Purchase Order line are received, and if the Accrue on Receipt flag is set to
YES, there will be Encumbrance liquidations on Accounting for the receipt, leading to liquidation of
Encumbrances. Since the accounting takes place at the time of receipt, the encumbrances are liquidated
and the actual amounts are booked. The following outlines the Accounting impact:
Steps:
The user creates a receipt for $3,000, which is the full value of goods received against the PO.
A Receive transaction is created when the receipt is saved. The accounting entry is:
Event Type
Receipt into Receiving Inspection
Encumbrance Type
Balance Type
Actual
Journal Entry Date
Receipt Date
DEBIT
Receiving Inspection A/c
CREDIT
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AP Accrual (Liability) A/c
$3,000
$3,000
When goods are delivered to the respective location, the following entries are created:
Event Type
Delivery to Expense Location
Encumbrance Type
Balance Type
Actual
Journal Entry Date
Date of Delivery
DEBIT
Charge Account from PO Distribution
CREDIT
Receiving Inspection A/c
Event Type
Delivery to Expense Location
Encumbrance Type
Obligation Reversal
Balance Type
Encumbrance
Journal Entry Date
Date of Delivery
DEBIT
CREDIT
$3,000
$3,000
$3,000
$3,000
Note: When there are period end accruals, the journal entries are quite similar to the flow described
earlier, with minor variations. The Actual and Encumbrance entries are reversed in the next period until
accounting occurs with Invoice Accounting.
Note: For all the encumbrance journals created through the sub-ledger, the Reserve for Encumbrance line
will not be there before posting. General Ledger (GL) automatically creates the balancing amount to the
Reserve for Encumbrance account during posting. GL does the same with unbalancing manually entered
encumbrance journals.
Invoice Matched to PO
Invoices are received from Suppliers against PO lines for payment. For Inventory and Expense Item,
If the Accrue on Receipt flag is set to YES, The following are the accounting entries in such a
scenario:
Steps:
14
The user receives the invoice from the vendor for $3,000 and enters the invoice details in
Oracle Accounts Payables. A draft Invoice is created.
The user matches the Invoice with the PO Shipment.
The user does Invoice Accounting for the Invoice. The following are the accounting entries
that are generated:
Event Type
Invoice Match to PO
Encumbrance Type
Balance Type
Actual
Journal Entry Date
GL Date specified on the Invoice Distribution
DEBIT
CREDIT
$3,000
Supplier Liability (Payables) A/c
$3,000
For Expense Item, if user set Accrual at Period-End, then Invoice accounting has an impact on
Encumbrances and reversals. The following are the accounting entries in such a scenario:
The user receives the invoice from the vendor for $3,000 and enters the invoice details in
Oracle Accounts Payables. A draft Invoice is created.
The user matches the Invoice with the PO Shipment.
The user does Invoice Accounting for the Invoice. The following are the accounting entries
that are generated:
Event Type
Invoice Match to PO
Encumbrance Type
Balance Type
Actual
Journal Entry Date
DEBIT
CREDIT
$3,000
The user Run Transfer Journal Entries to GL Program in Oracle Payables. This action
generated the following journal entries:
Event Type
Invoice Match to PO
Encumbrance Type
Obligation Reversal
Balance Type
Encumbrance
Journal Entry Date
DEBIT
CREDIT
15
$3,000
Budget Account from PO
$3,000
$3,000
The remaining budgetary funds now reflect as below:
Figure 6: Budget Position after Invoice Matching
Invoice Payment
When the user makes a payment against an Invoice, the following accounting entry will be generated:
Event Type
Invoice Payment
Encumbrance Type
Balance Type
Actual
Journal Entry Date
Payment Date
DEBIT
CREDIT
Cash Clearing/Cash/Bank A/c
$3,000
$3,000
Note: There are no Encumbrance journal entries during Payment, because the actual
expenditure is already accounted for, and the payment activity is used to liquidate the
outstanding liability against the vendor.
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Technical Overview
From a technical perspective, Encumbrance journal entries flow from Oracle Purchasing to
Oracle Sub-Ledger Accounting tables and then to the Oracle General Ledger tables.
The following flow chart explains the technical flow:
Figure 7: Encumbrance Accounting Technical Overview
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1.
When Reserving and Approving the PO, Encumbrance entries get generated in
GL_BC_PACKETS and the table PO_BC_DISTRIBUTIONS.
2.
Receiving generates Encumbrance Entries that are processed in the GL_INTERFACE table.
When a PO has the Accrue on Receipt flag set to Y, the Receiving Transaction Processor
generates the accounting entries in RCV_RECEIVING_SUB_LEDGER upon Receipt and
Deliver of the PO.
3.
Run the Create Accounting-Receiving concurrent program to create journals that will insert
records in XLA_AE_HEADERS and XLA_AE_LINES. Meanwhile, this program will
generate another program called Create Accounting that will create the entries in
GL_INTERFACE.
Conclusion
This paper provides an explanation of the complete Encumbrance Accounting process as it works in the
Procure-to-Pay flow. It separates the actual and budget amounts, and acts as a medium to control the
organizations spending effectively. Encumbrance Accounting also ensures that the actual spend is
maintained within the allocated budget.
To conclude, Encumbrance Accounting in Oracle e-Business Suite:
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Improves the Period Close Processing by automatic encumbrance journal entries
Increases the predictability of companys performance by restraining actual spend within budget
Gains better visibility into companys worldwide operations by tracking every expenditure
Appendix: Setup Overview

The Encumbrance Accounting function is based on effective and seamless integration between various
Oracle e-Business Suite modules such as Oracle General Ledger, Oracle Accounts Payables, Oracle Cost
Management, Oracle Purchasing and Oracle Inventory.
The steps for setting up and using Encumbrance Accounting consist of the following:
Setup in Oracle General Ledger
Setup in Oracle Purchasing and Payables
Setup in Oracle Inventory
Setup in Oracle General Ledger

The following are the Encumbrance Accounting related setup steps to be carried out in Oracle General
Ledger.
Enable Budgetary Control
Encumbrance Accounting works together with Budgetary Control. The Budgetary Control flag needs to
be enabled in Oracle General Ledger. The system automatically creates encumbrances from requisitions,
purchase orders and other transactions as Purchasing and Payables. If the Budgetary Control flag is not
enabled, the encumbrance entries have to be entered manually in Oracle General Ledger, and the
Requisition, Purchase Order and Payables will not generate encumbrance related accounting entries.
The steps for enabling the Budgetary Control flag are as follows:
1.
Log into Oracle e-Business Suite with an appropriate General Ledger responsibility.
2.
Navigate to General Ledger > Setup > Financials > Accounting Setup Manager (ASM)
> Accounting Setups> Update Accounting Options > Advanced Options
Figure 8: Enable Budgetary Control
3.
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Select the check box Enable Budgetary Control. This will enable funds checking within
Oracle General Ledger, Oracle Payables, and Oracle Purchasing modules, and will
automatically create encumbrance entries from Oracle Purchasing and Oracle Payables.
4.
Assign an account for the Reserve for Encumbrance Account. Oracle General Ledger
automatically posts offset amounts to this account when encumbrance transactions are
posted.
5.
Perform the same setup step for the secondary ledger if encumbrance needs to be used for
secondary ledger.
The following points are to be noted related to the Sub-Ledger Accounting Method:
If encumbrance needs to be enabled, then the Sub-Ledger Accounting Method has to be set to
Encumbrance Accrual in case of Accrual basis accounting method or Encumbrance Cash
in case of cash basis accounting method for the ledger.
If Encumbrance is not used, then the Sub-ledger Accounting Method has to be set as
Standard Accrual or Standard Cash for the ledger.
Figure 9: Sub-ledger Accounting Method
Define Budget
After enabling budgetary control for a ledger, the next step is to define a budget, to enter estimated
account balances for a specified range of periods. Use these estimated amounts to compare actual
balances, or to control actual and anticipated expenditures.
20
1.
Log into Oracle E-Business Suite with an appropriate General Ledger responsibility.
2.
Navigate to General Ledger > Budgets > Define > Budget
Figure 10: Define Budget
3.
Enter a budget name and description for a ledger, select the accounting period that will
collect estimated amounts for this budget.
Define Budget Organization

After creating a budget, the next step is to define which organization and which account is to be used
for budgetary control. Budgetary Account Range and Organization are defined in Budget Organization
window:
1.
Log into Oracle E-Business Suite with an appropriate General Ledger responsibility.
2.
Navigate to General Ledger > Budget > Define > Organization
Figure 11: Define Budget Organization
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3.
Enter a Name and Description for the Budget Organization. Budget Organization is the
budget entity, to which the budgets are estimated.
4.
Assign accounts for which the budgetary control is required for the given budget
organization.
Figure 12: Account Ranges

5. Set the appropriate Funds Check level for each Account Range. For the Funding Budget
field, select the budget which was defined on Define Budget to link the account range with
the budget.
Figure 13: Budgetary Control Options
Define Budgetary Control Groups

The next step is to define the budgetary control rules in Budgetary Control Group Window.
22
1.
Log into Oracle e-Business Suite with an appropriate General Ledger responsibility.
2.
Navigate to General Ledger > Budgets > Define > Controls.
Figure 14: Budgetary Control Group
3.
Enter a name for the budgetary control group. Select journal sources, categories, funds check
level, and related details. If Tolerance is set as Advisory, then the budgetary control will allow
overriding of the spend amount, even if its more than the budget amount.
Assign Budgetary Control Groups

Users can also create multiple budgetary control groups for different budgetary control tolerances and
override insufficient funds. Every usage could have one default budgetary control group. The default
group is linked to a user in the System Profile window.
1.
Log into Oracle E-Business Suite with the System Administrator responsibility.
2.
Navigate to System Administrator >Profile > System.
Figure 15: Profile for Budgetary Control Group
3.
Select Default Budgetary Control Group value for User.
Open Encumbrance Year

After enabling budgetary control for a Ledger, Encumbrance Accounting Period needs to be opened for
entering and posting encumbrance journal entries. Initial encumbrance year is opened automatically
when the first period of ledger is opened.
23
The steps are similar to the steps to set up the Actual Accounting Period:
1.
Log in to Oracle General Ledger with an appropriate General Ledger responsibility.
2.
Navigate to General Ledger > Setup > Open/Close
Figure 16: Open Encumbrance Year
3.
Click the Open Next Year button, and the next year will be opened. When you open an
encumbrance year, the user will always be able to enter and post encumbrance journals to any
period up to the latest open encumbrance year.
Define Encumbrance Types

The next step is to define Encumbrance Types. Encumbrance Types segregate funds reservation levels
for Purchase Requisitions, Purchase Orders, and Invoices. Users can classify and track expenditures
according to the reservation levels and can define as many additional encumbrance types as needed.
The setup steps are:
1.
Login to Oracle General Ledger with an appropriate General Ledger responsibility.
2.
Navigate to General Ledger > Setup > Journals > Encumbrances.
Figure 17: Define Encumbrance Types
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3.
Enter the Encumbrance Types as needed.

In Oracle General Ledger, The seeded encumbrance types are:
Commitment: An encumbrance for a purchase requisition.

Obligation: An encumbrance for a purchase order.
Note: By default, Requisition encumbrance is Commitment, PO encumbrance is Obligation and invoice

encumbrance is Invoice. If any of these three encumbrance types are not enabled in GL > Setup >
Journal > Encumbrance, then the transaction document (PR/PO/Invoice) will display a budgetary
control exception and will fail funds check.
Setup in Oracle Purchasing, Oracle Payables and Oracle Cost Management

After setting up Encumbrance Accounting in Oracle General Ledger, you need to set up integrated
modules such as Oracle Purchasing, Oracle Payables and Oracle Cost Management to let the system
generate different encumbrance journal entries for different transactions.
Define Financials Encumbrance Options
After defining Encumbrance Types, users need to enable Encumbrances for PR / PO / Invoices using
the Financial Options window:
1.
2.
Log in to Oracle Payables or Oracle Purchasing with an appropriate Payables/Purchasing

responsibility.
Navigate to Setup > Options > Financial Options> Encumbrance tab.
Figure 18: Define Financial Encumbrance Options
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3.
Select the operating unit, in the Encumbrance tab - enable Use PO Encumbrance to enable
encumbrances for POs and Supplier invoices. Optionally enable Use Requisition Encumbrance
to encumber requisitions as well.
Enable Encumbrance in Oracle Purchasing, Oracle Payables and Oracle Cost Management
Users need to associate Encumbrance Type to Journal Line Types. This step is done while defining SubLedger Accounting Method:
1.
2.
Log into Oracle Cost Management/Oracle Purchasing/Oracle Payables with an appropriate

Super User responsibility.
Navigate to Cost Management/Purchasing/Payables>Set up > SLA > Accounting Methods
Builder > Methods and Definition > Sub-Ledger Accounting Methods
Figure 19: Enable Encumbrance in Oracle Purchasing and Oracle Payables
3.
For Oracle Purchasing, the seeded method is Purchasing Encumbrance Application

Accounting Definition. For Payables, it is Encumbrance Accrual or Encumbrance Cash
depending on the accounting method. Alternatively, users can define their own application
accounting definitions.
Setup in Oracle Inventory

Oracle Inventory and Oracle Purchasing provide a visible control of accrued liabilities for inventory
items. Oracle Purchasing automatically records the accrued liability for inventory items at the time of
receipt. The inventory expense is recorded at the time of delivery. In the Inventory Organization
Parameter window, users can determine whether encumbrance reversals are needed.
Enabling the 'Reverse Encumbrance' check box
1.
2.
26
Log into Oracle Inventory with an appropriate super user responsibility.

Navigation: Inventory > Setup > Organization > Parameters > Costing tab
3.
Select Reverse Encumbrance for reversal of encumbrances created in Oracle Purchasing.
Figure 20: Costing Information
Define the Encumbrance Account

For Inventory Destination bound purchased items, users also need to specify the Encumbrance Account
in the Organization Parameter window. The steps are as follows:
1.
Login to Oracle Inventory with an appropriate super user responsibility.
2.
Navigate to Inventory > Setup > Organization > Parameters > Other Accounts
Figure 21: Organization Parameters - Other Accounts
27
3.
28
Enter an account for Encumbrance. Requisitions and purchase orders for inventory purchases
will create commitments/obligations against the encumbrance account.
Appendix: Common Customer Issues and their resolution

Oracle Encumbrance Accounting integrates seamlessly with Oracle Purchasing, Oracle Payables and
Oracle General Ledger. This section provides details of common issues frequently identified around
Encumbrance and Accrual Accounting and how they can be resolved.
Issue: Negative Encumbrance Occurs In Funds Inquiry Screen (Doc ID 949876.1)

Reproduction steps:
1.
Login to Oracle Purchasing, create a PO and reserve this PO.
2.
Login to Oracle General Ledger, Navigation: General Ledger > Journal > Inquiry > Funds.
The Encumbrance Amount is Negative.
Cause:
In Release 12 (R12), reversal of encumbrances happens automatically when the Create Accounting
process is done with the end date as first date of the next period. Users need not perform the reversal of
encumbrance reversal as a separate process. However, reversal of encumbrances is needed for Periodic
Average Costing (PAC) usage, because PAC is not using Oracle Sub-Ledger Accounting. Hence in R12
with PAC, the encumbrance reversal entries should be reversed explicitly.
Resolution:
1.
29
Identify whether missing reversal of encumbrance is the cause for negative encumbrance: Run
the script given below which will confirm that the reversal for the encumbrance reversal has not
been carried out in case of period end accruals.
2.
3.
Get total amount against each account for the current year or quarter or period using this script.
Enter a manual encumbrance debit entry for the total amount. This should resolve the negative
encumbrance caused because of this issue.
Issue: Encumbrance Not Getting Converted To Actual for Purchase Orders (Doc ID
728064.1)
Steps to reproduce:
1.
Log into Oracle Purchasing, Create a new PO, and set the PO for Accrue at Receipt and for
Inventory Destination. Approve & Reserve this PO.
2.
Create a Receipt against this PO after receiving the ordered items.
3.
Run Transfer to GL program to transfer journal entries to General Ledger
4.
Log into Oracle General Ledger, Navigate to: General Ledger > Journal > Inquiry > Funds
You can notice that the Encumbrance Amount did not get converted to actual amount.
Cause:
1.
The option Reverse Encumbrance is not enabled in Inventory > Set up > Organization >
Parameters > Costing tab, therefore encumbrance will not get reversed on performing the
receipt and delivery of PO to Inventory destination. The actual amount will get accounted on
the other side but the encumbrance does not get converted to actual amount.
2.
If the budget account used in the PO and the Sub-inventory's Material Account / Expense
Account are not the same, the encumbrance reversal will happen for the budget account against
which the funds got reserved, however, actuals will not get accounted to the same budget
account. Instead Actuals will get accounted to the Sub-inventory's account. This will result in
incorrect funds availability because the encumbrance does not get converted to Actuals.
Resolution:
For inventory destination POs:
30
1.
When the deliver transaction is complete, verify Inventory > Transactions > Material
Transactions > Distributions to confirm the transaction is correctly considered for costing and
is accounted.
2.
Submit the Create Accounting-Cost Management program immediately. Set the parameters
Transfer to GL as Yes and Post to GL as Yes.
3.
Ensure that the Reverse Encumbrance flag is enabled in Inventory > Set up > Organization >
Parameters > Costing tab.
4.
Ensure that the encumbrance account against which the funds get reserved is same as the
Actual account that gets accounted on performing the PO receipt and delivery.
5.
For inventory asset items that use Average costing, Encumbrance Account and Material
Account defined in Inventory Organization parameters should be same.
6.
For inventory asset items that use Standard Costing, Encumbrance Account and Material
Account defined for the sub-inventory should be same.
7.
For Inventory expense items that use Standard Costing or Average Costing, Encumbrance
account defined for the item should be same as the expense account defined for the subinventory.
Summary of other common issues and recommended patches to resolve the issues:
Issues related to Encumbrance Journal:
Issue(s)
Cause
Patch to be applied to resolve

the issue
Encumbrance accounting
This is due to the wrong sign of variable
during over receipt return
1_source_doc_quantity in PROCEDURE
creates negative balance
Get_Quantity() in RCVVRUTB.pls.
Reserve for encumbrance in
Prior to this patch, the code had wrongly passed
Patch.9100984:R12.PSA.A for
SLA- incorrect for PO when
Funds Check and set that BC event as 'Processed' ,
R12 &
some lines have no funds
when one or more distribution failed Funds Check,
Patch.9100984:R12.PSA.B
Patch.10209325:R12.BOM.C
resulting in unbalanced GL entries getting created.

Wrong SLA status returned
If there were multiple lines passed to XLA and not
to AP
all of them fail with XLA_NO_JOURNAL error,
R12 &
PSA passes the wrong status to AP
Patch.9037877:R12.PSA.B for
12.1
When an inventory item in
The journal for inventory encumbrance reversal
an encumbrance instance is
was missing the join to the accounting line type 15
returned, accounting is
causing number of records to return as many
wrong
accounting line types as there are in Inventory sub-
Patch.8914459:R12.BOM.A
ledger 'mtl_transaction_accounts'
Encumbrance accounting
Unprocessed Budgetary events were processed
Patch.8423174:R12.XLA.A for
event processed with the
along with the Non-Budgetary events , resulting in
R12 &
actual journals
incorrect accounting in Costing during the Create
Patch.8423174:R12.XLA.B for
Accounting process
12.1
Code limitation in file CSTVRAPB.pls
Patch.7661294:R12.BOM.A for
Receipt accrual -period end

program missing billed amt
R12 &
PSA API returns incorrect
31
Reversal Encumbrance amount calculation on PO
Issue(s)
Cause

the issue
PO reverse encumbrance
did not consider the exchange rate due to code
R12 &
amount
limitation
12.1
PO reversed encumbered
Code limitation in file psavapbb.pls
Patch.7229803:R12.PSA.A
Code limitation in file cstxlaaad.ldt
On receipt corrections the
The actual lines
Patch.8904447
budgetary entries to general
populate the TC code
amount calculation needs

to be fixed.
CST: Internal order to
expense not relieving the
encumbrance entry
Correct transaction did not
ledger incorrect.
Internal requisition
Encumbrance reversal accounting entries were not
encumbrance cancel
being generated by the Periodic distribution
reversal batch
processor since total received quantity was counted
Patch.7031719
for all receipts like perpetual costing method rather

than computing total received quantity just before
the current receipt transaction as PAC is used
Encumbrance incorrect
Code limitation in file RCVVRUTB.pls
Patch.6683404
Inventory generates
Code was using purch_encumbrance_flag instead
Patch.7127049
incorrect Encumbrance
of req_encumbrance_flag while checking for
reversal. PR Encumbrance
encumbrance reversal
after corrections made to

receipts
is set to off in financials

Journal import errors with
Code limitation in file RCVVACCB.pls
Patch.4153676
ecw1 ec10 for POs created

in foreign currency
Completely relieve active
Patch. 15987200:R2.PO.B
encumbrance during finally

close
Approval Checkout of
requisition does not
encumber all the
distributions
32
Patch.7529281:R12.ICX.B
Issue(s)
Cause

the issue
Edit the Document without
Patch.15843459:R12.PRC_PF.B
Unreserve ER
Invalid Business Flow Prior
Patch. 6681444:R12.PO.B
events error (BFLOW)

When attempting to cancel
Patch. 16781315:R12.PO.B
a PO with backing
req, without cancelling the
req, error was occurring
View results does not show
Patch.12824154:R12.PO.B
any budgetary control

errors
Funds check error for a
Patch. 4229705:R12.PO.B
foreign currency PO
Issues related to Global Procurement Accounting

Issues
Cause
Patch Number
Receive transaction of
Code limitation in the following files:
Patch.8684475:R12.BOM.A for
global procurement get
CSTPACQS.pls
R12 and
wrong currency rate
CSTPACQB.pls & CSTAPRB.pls
Patch.8684475:R12.BOM.C for
12.1 (Controlled release)
Issues related to Budgetary Control Exceptions and Incorrect Funds Check Behavior
Issues
Not able to re-reserve an
Cause
Patch Number
Code limitation in file POXENC2B.pls
Patch.10329412:R12.PO.B
BC API should work in
This issue occurred because of locking system in
background mode for
PSA code, before the approval application tries to
R12 &
concurrent requests
reserve the document. At the time of reserve,
gl_bc_dual table gets locked in exclusive
12.1
adjust federal planned PO
NOWAIT mode. Because of this reason, if

processes for multiple documents tried to access
the table at the same time only one of them gets
the lock and rest returned with an exception
33
Issues
Cause
Patch Number
The funds verification fails
Special S rows are not inserted in
even when funds are
gl_bc_period_map table
R12 (Controlled release) &
available.
for non federal customers resulting in inaccurate
calculation in file glbcma.lpc
12.1
RCA multiple entities SCM-
Multiple entities are created for PO having many
Patch.9235968:R12.XLA.A for
Purchasing 3-1081270271
distributions when funds check is done
R12 &
distribution by distribution in some scenarios
Patch.9235968:R12.XLA.B for
12.1 (Controlled release)
PSA rollup patch for critical
Consolidated fix for bugs related to PSA
bug fixes and
R12 &
enhancements
12.1
Buyers unable to cancel
Patch.7138036:R12.PO.A
Issue with fund check and
For applications where AAD is not defined for
Patch.6414911:R12.XLA.A
budgetary control during
secondary ledger, it implies that product teams do
PO funds reserve
not want to account for secondary ledger during
approved requisition lines

in iProcurement
funds reserve/check. However, SLA was stamping

the budgetary event in error status because
secondary ledger processing was not successful
R12 invoice getting cant
psa_funds_checker_pkg was invalid. The column
funds check hold, cannot
GL_ROW_NUMBER existed in table
find why
GL_BC_PACKETS instead of gms_bc_packets
Check funds not working in
In routine get_sla_notupgraded_flag the following
language
statement was used:
to_date(Fnd_Profile.Value_Wnps
('PSA_R12_UPGRADE_DATE'), 'DD-MONRRRR HH24:MI:SS'); MON is normally 3 bytes
for English. However it converted into > 3 bytes
for some languages which causes this plsql code to
fall over
POAPPRV fails with
Procedure SetItemAttrText() in
attribute
PO_REQAPPROVAL_ACTION.get_advisory_w
advisory_warning_check
arning() was being called in case of a PO due to
does not exist
code limitation in file POXWPA4B.pls
34
Patch.7109979
Issues
This account doesn't
Cause
Patch Number
Code limitation in file psafbcfb.pls
Patch.5107441
Code limitation in file gmsglfcb.pls
Patch.6761361
Patch.4455643
Patch.4455643
PO stuck in pre-approved
Due to incorrect setup for ITG ( iProcurement
Patch.4895526
approval status
Connector) , exceptions were being raised in the
require funds check

PO is stuck in pre approved
state. issue with reserve
document
Reserve action fails for
scheduled release for
planned PO having a
backing requisition
PO stuck pre-approved- no
funds available when using
USSGL/t-codes
ITG code, which were being propagated to the PO

transaction causing the trigger to fire. Thus the PO
transaction was being rolled-back/errored out.
Better error message about
Result code P29, P31, P35, P36, P37, P38 was
status of funds
used for advisory and they were improper. In
Patch 6125623
Purchasing these were treated as Success.

Successive return of a
Code limitation issue.
Patch 5467527
Po_msg_null_message
Incorrect code that was part of get_period_info to
Patch.7218243:R12.PRC_PF.A
when purchasing period
set the send_to_gl_flag to 'N' for all rows that
closed
failed GL period checks.
Reserve action fails for
PR distribution id was populated onto the
scheduled release for
scheduled release distribution which was not
planned PO having a
required.
requisition line after one

line has already been
returned, failed if
encumbrance was enabled
Patch.4455643
backing req.
Po stuck pre-approved - no
funds available when using
USSGL /t-codes
35
Code limitation issue.
Patch.4285929
Issues Related To R12 Create Accounting Process

Issues
Cause
Landed cost adjustment
Code limitation in files cstxlaaad.ldt and
account was not created
cstxlaemseed.ldt
Patch Number
after run landed cost

adjustment
Accounting program
When the source used in the create accounting program
(xlaaccup) completes in
is higher than 240 characters, the accounting program
error
errors out with the ORA-06502: PL/SQL: numeric or
value error: characters which is a limitation of XLA

accounting program
Costing single event
Design issue between CST,PSA,XLA for encumbrance
approach for expense
accounting flow or Expense Destination POs accrued at
for R12 &
destination PO
receipt and accrued at period end
for 12.1.1 and 12.1.2
Getting rvtth-
The view PSA_CST_XLA_UPG_V was not handling
448:subroutine user-defined
Blanket Purchase Order Release properly. The Entity
for R12 &
exception error while
code for Blanket Purchase Order Release is different
Patch.9711342:R12.PSA.B
receiving expense
for 12.1
Cannot add an existing
The application_type_code in xla_subledgers for the
source to an existing event
application 707 was incorrectly seeded
for R12 &
class
for 12.1
CST XLA seed data
Code limitation in file cstxlaemseed.ldt
XLAACCUP
For the Event Retroactive Price Adjustment to Delivery
xla_ae_header_pkg.setlinea
has the accounting attribute currency rate type attached
for R12 &
cctattrs errors
to source currency conversion rate so if the rate is more
than the varchar2 limit of rate type the create
for 12.1
incorrectly loaded causing

invalid AADS
accounting program fails

RCA: r12:create accounting
When there no events to be processed then in Create
process does not drop
Accounting program "accounting_program_batch"
for R12 &
queue table
procedure raises an exception "normal_termination"
Patch.8284764:R12.XLA.B
where the queues are not being cleaned up
for 12.1
Code limitation in files CSTACDPB.pls
Average costing: SubLedger journal entry does
36
Issues
Cause
Patch Number
not balance in the entered

currency
Creating receipts for
This issue started due to the recent SLA enhancement
upgraded PO's get rvtth-
7193986.Because of this enhancement it is required to
448 error
clean XLA GTs between multiple calls to XLA API. As
PSA is cleaning only few XLA GTs, this issue was

raised
Unable to view create
The reference of P_LEDGER_NAME in the template
accounting xml output.
XLAACCPB00.rtf is not efficient
for R12 &

for 12.1
Create accounting creates
The logical sales issue to expense destination accounting
one-sided entries for logical
entry is missing in Cost setup
intercompany transactions
R12:accounting program
The cause of this issue was database core dump. It was
Patch.5889331 - This is a
ended with GLIBC
determined by the following error seen in the raw trace
DB patch applicable for
detected double free or
of the Accounting Program concurrent program:
RDBMS version 10.2.0.3
corruption
[...]
Exception signal: 11 (SIGSEGV), code: 1 (Address not
mapped to object), addr: 0x0, PC: [0x1871af5,
expCheckExprEquiv()+5015]
*** 2008-06-20 23:31:09.278
ksedmp: internal or fatal error
ORA-07445: exception encountered: core dump
[expCheckExprEquiv()+5015] [SIGSEGV] [Address
not mapped to object] [0x000000000] [] []
Current SQL statement for this session:
INSERT INTO XLA_DIAG_SOURCES (
EVENT_ID , LEDGER_ID , SLA_LEDGER_ID ,
DESCRIPTION_LANGUAGE , OBJECT_NAME ,
OBJECT_TYPE_CODE , LINE_NUMBER , [...]
Xlaaccup: ora-00001: unique
This issue can be resolved by adding event_id to index
constraint
xla_Ae_lines_gt_u1
for R12 &
(xla.xla_ae_lines_gt_u1)
violated
for R12.1 (controlled

release)
R12 : SLA consolidated
37
Consolidated fix
Issues
Cause
Patch Number
critical fixes on Feb 19, 2008

Getting error while saving
The view PSA_CST_XLA_UPG_V was checking
receipt of expense POs
receiving inventory org instead of PO operating unit
Appendix: Important Tables used by Encumbrance Accounting

The following tables are used for the encumbrance transactions.
Requisitions:
PO_REQUISITION_DISTRIBUTIONS.encumbered_flag
PO_REQUISITION_DISTRIBUTIONS.encumbered_amount
PO_DISTRIBUTIONS.encumbered_flag
PO_DISTRIBUTIONS.encumbered_amount
Po_bc_distributions
XLA_EVENTS
XLA_AE_LINES
XLA_AE_HEADERS
XLA_DISTRIBUTIONS_LINK,
XLA_TRANSACTION_ENTITIES
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
Purchase Orders:
SLA :
General Ledger:
38
Appendix: Reference Documents / Notes related to Encumbrances
39
Master Note For Oracle EBS Procurement Suite-Encumbrance And Accrual Accounting
[Document ID 1138043.1]
Impact of R12 Design in PO Accounting [Document ID:429105.1]
Oracle Applications Release 12 Upgrade Sizing and Best Practices to evaluate the potential
growth of your SLA tables[ Document ID:399362.1]
R12 FAQ for the SLA Upgrade: SLA Pre-Upgrade, Post-Upgrade, and Hot Patch[ Document
ID:604893.1]
Create Accounting Process [Document ID:579836.1]
R12 Account Requirements For Inventory Accrual Reconciliation[Document ID:824388.1]
R12 FAQ Accounting for On Line and Period End Accruals [Document ID:1113712.1]
FAQ R12 Essentials Of Accrual Accounting [ID 827125.1]
R12 How To Diagnose Issues with Period End Accruals [ID 603971.1]
R12: Discrepancies With Period End Accruals-Troubleshooting [ID 1279848.1]
R12 Receipt Accrual Period end process-Duplicate accrual reversal entries created [ID
873399.1]
FAQ Encumbrance Accounting - Setup And Usage [Doc ID 1086669.1]
R12: Diagnostic Script to help troubleshoot Purchasing Accounting or Encumbrance Issues
[Doc ID 1483743.1]
Steps to Run Import And Validate AAD (Application Accounting Definition) with
troubleshooting [Doc ID 1406203.1]
White Paper Title: Encumbrance Accounting in
Copyright 2014, Oracle and/or its affiliates. All rights reserved.
the Procure to Pay Flow: Best Practices

May 2014
Author: Sabrina Sun
Contributing Authors: Vijayaganesh
Sampathkumar, Supriya Bontala, Acharya
Devadula
This document is provided for information purposes only, and the contents hereof are subject to change without notice. This
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An Oracle White Paper

Encumbrance Accounting in the Procure to Pay

Encumbrance Accounting in the Procure to Pay Flow: Best Practices

Executive Overview ..................................................................................................... 3

Encumbrance Accounting in the Procure to Pay Flow: Best Practices

Figure 1: Setting up Budget for Encumbrance Accounting.................................................... 8

Encumbrance Accounting in the Procure to Pay Flow: Best Practices

Encumbrance Accounting in the Procure to Pay Flow: Best Practices

What is Encumbrance Accounting?

What is Encumbrance Accounting in Oracle e-Business Suite?

Encumbrance Accounting in the Procure to Pay Flow: Best Practices

Oracle Encumbrance Accounting Terms

Benefits of Encumbrance Accounting

Enforces Control: Encumbrance Accounting works together with budgetary control,

Increases Visibility: Encumbrance Accounting enables users to pre-allocate the

Accelerates Planning Process: Encumbrance Accounting is used to predict cash

Encumbrance Accounting in the Procure to Pay Flow: Best Practices

Encumbrance Accounting Procure-to-Pay Overall Process Flow

Budget Allocated for Expenditure $10000

Purchase Requisition (PR) created for $

PR Auto-created to Purchase Order (PO)

Purchase Order Value changed from

Purchase Order Approved

Invoiced received and matched against

Encumbrance Accounting in the Procure to Pay Flow: Best Practices

Encumbrance Accounting Procure to Pay with Journal Entries

Purchase Requisition Approval & Reserve

Purchase Order Approval & Reserve

PO Changes: Increase or Decrease of Qty

PO Changes: Cancellation of Quantities/Lines/Shipments

Login and select an appropriate General Ledger responsibility.

Navigate to General Ledger > Budget > Enter > Journals

Encumbrance Accounting in the Procure to Pay Flow: Best Practices

Figure 1: Setting up Budget for Encumbrance Accounting

Enter a budget amount for specific accounts for each period.

Figure 2: Funds Availability after Budget Creation

Encumbrance Accounting in the Procure to Pay Flow: Best Practices

Purchase Requisitions Approval and Reserve

Journal Entry Date

Encumbrance Date as provided in the PR distribution

Budget Account from PR Distribution

Reserve for Encumbrance (Commitment)

Figure 3: Budget Position after Commitment

Encumbrance Accounting in the Procure to Pay Flow: Best Practices

Purchase Order Reservation & Approval

Journal Entry Date

Encumbrance Date as provided in the PO distribution

Reserve for Encumbrance (Commitment)

Budget Account from PR Distribution

Purchase Order Reserve

Journal Entry Date

Encumbrance Date as provided in the PO distribution

Budget Account from PO Distribution

Reserve for Encumbrance (Obligation)

Encumbrance Accounting in the Procure to Pay Flow: Best Practices

The budgetary funds remaining will now reflect as:

Figure 4: Budget Position after Obligation

Changes to PO: Increase quantity or price through Revision

Purchase Order Reserve

Journal Entry Date

Encumbrance Date as provided in the PO distribution

Budget Account from PO Distribution