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General

Ledger
Encumbrance

Encumbrance Brownbag Setup and Usage

Section 1 Purpose, Scope and Application....................3


Section 2 INTRODUCTION............................................3
2.1 Encumbrance:...................................................3
2.2 Encumbrance Accounting:................................3
2.3 Usage:...............................................................4
2.4 Modules Involved in Oracle Application:..........4
2.5 Prerequisites:....................................................4
Section 3 Top Level view of Encumbrance Flow...........4
Section 4 Encumbrance Setup.......................................5
4.1 Oracle General Ledger......................................5
4.1.1 Enable Budgetary Control for the SOB..........5
4.1.2 Assign for Reserve for Encumbrances Account to Set Of Books (SOB)
6
4.1.3 Open Encumbrance Year................................6
4.1.4 Define Budget................................................7
4.1.5 Define Budget Organization...........................8
4.1.6 Define Encumbrance Types...........................9
4.1.7 Define Budgetary Control Groups................10
4.1.8 Assign Budgetary Control Groups...............11
4.2 Oracle Purchasing and Payables.....................12
4.2.1 Enable Encumbrance...................................13
Section 5 USAGE.........................................................15
5.0 Entering Budget..............................................15
5.1 Encumbrance Accounting Flow from Purchasing and Payables 18
5.1.1 Purchasing...................................................18
5.1.2 Payables.......................................................28
5.1.3 General Ledger............................................32
5.2 Reviewing Encumbrances in GL.....................33
5.3 Encumbrance Accounting and Relief in Various Scenarios
33
5.4 Viewing Funds Available.................................35
5.5 Year-End Carry-Forward of Encumbrance Processing
35
5.5.1 Year End Carry Forward Check List............36
5.5.2 Year-End Carry Forward In Oracle General Ledger:
36
Section 6 Important Terms Used in Encumbrance Accounting
36
Section 7 Important Tables Used for Encumbrance....40

Encumbrance Brownbag Setup and Usage

SECTION 1

PURPOSE, SCOPE AND APPLICATION

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.

2.1

Encumbrance:
Reservation of funds is known as encumbrance. The Thesaurus explains the
meaning of encumbrance as burden or Load. The purposes of tracking
encumbrances are as follows:

Avoid overspending a budget

To facilitate effective control and consumption of budget by pre-allocating


budget amount

To Predict cash outflow and as a general planning tool.

Encumbrance is a commitment to pay in the future for goods or services ordered by


not yet received. The terms encumbrance and commitment are used
interchangeably. The budget amount can be reduced by the amount of encumbrance
as listed below.

On creation where approval is not required.

On Approval where the approval is required.

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.

2.2

Encumbrance Accounting:
Encumbrance accounting is a form of budgetary control within Oracle Applications
that enables a company to allocate funding for specific accounts. The funds
checking feature which is an integral part of encumbrance accounting, checks for
availability of funds on a particular accounting combination.
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.

2.3

Usage:
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 overexpenditure 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 overexpenditures
before they occur.

2.4

Modules Involved in Oracle Application:


The encumbrance accounting is involved dealt in the following modules.

Oracle Purchasing

Oracle Payables and finally

Oracle General Ledger.

Hence we need to know the basic setup required in each modules.

2.5

Prerequisites:
The pre-requisites to enable encumbrance are as follows:

Installation of required modules

Creation of Set of Books in General Ledger

Create a Encumbrance Calendar

Assign the Set of Books in the other modules (Purchasing and Payables)

Enable Budgetary Control in SOB.

SECTION 3

TOP LEVEL VIEW OF ENCUMBRANCE FLOW

The encumbrance accounting can be achieved in the following order:

Figure 1: Encumbrance Flow

Description: Figure 1 displays the top-level view of encumbrance flow.


Accounting Entries such as Reserving / Relieving encumbrances are listed below:

When performing reserve on documents in Purchasing such as requisition, PO,


Agreements and so on.

When Approving an Invoice in AP

When Creating the Journal Entries in GL.


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).

SECTION 4

ENCUMBRANCE SETUP

The setups for encumbrance are done in the following modules as described
below

4.1

Oracle General Ledger


4.1.1 Enable Budgetary Control for the SOB
Navigation: Setup -> Financials -> Books
Alternative Region: Budgetary Control Options
Flag the Enable Budgetary Control Check Box

On selecting the check box requires users to enter the code combination for
Reserve for Encumbrance Account column, which is available on this region.

4.1.2 Assign for Reserve for Encumbrances Account to Set Of


Books (SOB)
Navigation: Setup -> Financials -> Books
Alternative Region: Budgetary Control Options
Assign the Code Combination for the Reserve for Encumbrance Account

Figure 2: Enabling Budgetary Control


Description: Figure 2 displays the Set of Books window. The window is
described in point no. 4.1.1 and 4.1.2

4.1.3 Open Encumbrance Year


Navigation: Setup -> Open/Close
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.

Figure 3: Opening Encumbrance Year

Description: Figure3 displays the Open and Close Periods window. The
window has been discussed in point no. 4.1.3

4.1.4 Define Budget


Navigation: Budgets -> Define -> 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.
Open: The budget is available for update and budget entry.
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.

Figure 4: Defining Budget

Description: Figure 4 displays the Define Budget window. This window has
been discussed in point no. 4.1.4

4.1.5 Define Budget Organization


Navigation: Budget -> Define -> Organization
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.

Figure 5: Defining Budget Organization

Description: Figure 5 displays the Define Budget Organization window. The


above window is discussion in point no. 4.1.5

4.1.6 Define Encumbrance Types


Navigation: Setup -> Journals > Encumbrances
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:

Absolute: Allows only when the funds are available

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.

Figure 6: Defining Encumbrance Types

Description: Figure 6 displays the Encumbrance Types window. The above


window is discussed in point no. 4.1.6

4.1.7 Define Budgetary Control Groups


Navigation: Budgets -> Define -> Controls
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.

Figure 7: Budgetary Control Groups

Description: Figure 7 displays the Budgetary Control Groups window. The


above window is discussed in point no. 4.1.7

4.1.8 Assign Budgetary Control Groups


Responsibility: System Administrator
Navigation: Profile -> System
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.)

Figure 8: Assigning Budgetary Control Group

Description: Figure 8 displays the System Profile Values window. The above
window is discussed in point no. 4.1.8

4.2

Oracle Purchasing and Payables


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

4.2.1 Enable 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.
Navigation Purchasing: Setup -> Organization -> Financial Options

Navigation Payables: Setup -> Options ->Financial


Go to Encumbrance Region.
Select the required encumbrance types as defined in step 4.1.6.

Figure 9: Enabling Encumbrance in Oracle Purchasing or Payables

Description: Figure 9 displays the Financials Options window. The above


window is discussed in point no. 4.2.1

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.

5.0

Entering Budget

Encumbrance Accounting Flow from Purchasing and Payables

Reviewing Encumbrances in GL

Encumbrances Accounting and Relief in Various Scenarios

Viewing Funds Available

YearEnd Encumbrance Processing

Entering Budget
Budget entries can be entered either through the Enter Budget Amounts form
or through the Enter Budget Journals form

Navigations: BudgetsEnterJournals

Figure 10: Entering Budgets through budget journals form

Figure 10: The above figure shows the budget journals form with an amount
of 10000 entered against account 01-130-7230-0000-000 for the month of Jan03

Figure 11: Check Budget Amount through Funds Available form

Figure 11: The above figure shows the Funds available for the Account 01130-7230-0000-000 for the month of Jan-03 after the budget journal was
created

5.1

Encumbrance Accounting Flow from Purchasing and Payables


Encumbrances entries can be created as below.

5.1.1 Purchasing
Encumbrance can start from Purchasing. To have the full cycle of
encumbrance, we need to create the following

5.1.1.1

Requisition

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

Accounting when the journal gets posted in General Leger

Document

Expense DR

Req Reserve

1000

Expense CR

RFE DR

RFE CR
1000

Figure 12: Creating a Requisition in Purchasing

Navigation: Requisitions Requisitions

Figure 12 shows the requisition for RS 1000 with the distribution


form showing that the charge and budget are to account 01-1307230-0000-000

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

5.1.1.2

Purchase Order

Users can create, approve and reserve Funds for Purchase Order from
requisition
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)

Encumbrance Type = PO (Purchase Order)


CCID
Accounting

= CCID given in PO Distribution


when the journal gets posted in General Ledger

Document

Expense DR

Req Reserve

1000

1000

PO Reserve

1000

1000

Req
Unreserve

Expense CR

1000

RFE DR

1000

RFE CR

Figure 14: Auto-create a Purchase order for the requisition that was created
earlier

Navigation: Purchasing responsibility - Autocreate

Figure 14 shows the PO which has been created for the requisition and it is not
accrued at the time of Receipt

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

5.1.1.3

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.
The Transaction created can have the following feature:

Docume
nt

Exp Dr

PO
Reserve

1000

PO Enc
Relief
Charge
Accnt

Exp CR

RFE
CR

REC
DR

REC
ACC
DR

REC
ACC
CR

1000
1000

1000

RFE
DR

1000
1000

Figure 16: Receiving the Goods

Figure 16 shows the Receipt made for PO 2548.

Figure 17: Receiving Transaction Summary No Accrual at Receipt

Figure 17 does not show any accounting entries because the accrue at receipt is
not
enabled for this PO 2548

Figure 18: Receiving Transaction Summary With Accrual at Receipt

Figure 18 shows Receipt Transaction Summary with accounting


entries when the Accrue at receipt option is enabled.

5.1.2 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.

5.1.2.1

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.

5.1.2.2

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)

Docume
nt

Exp Dr

PO Enc
Relief
Invoice
Enc
create

RFE
DR

1000

1000

1000

Inv Enc
Relief
Charge
Accnt

Exp CR

RFE
CR

AP
Accrual
DR

AP
Accrual
CR

1000

1000

1000

1000

Figure 19: Invoice Creation and Accounting in Payables

1000

Figure 19 shows the Invoice that has been created by Matching PO 2548 and is
also validated.
It also shows the accounting entries created at the time of PO

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.

5.1.2.3

Transfer the data to General Ledger

Navigation: Other -> Request -> Run


Select the Payables Transfer to General Ledger. Complete parameters and
submit request.

5.1.3 General 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)

5.1.3.1
Entries

Create Encumbrance Journals using Manual

Navigation: Journals -> Encumbrance


The source of the journal can be Encumbrance, which cannot be
modified. Choose the appropriate category and enter the journals.

5.1.3.2
Create Encumbrance On Imported Transactions
from Purchasing / Payables
Users can run Journal Import Program to create journal entries for the
Encumbrance transactions entered in other modules.
Navigation: Journals -> Import
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.

5.2

Reviewing Encumbrances in GL
Reviewing Encumbrance entries can be done as listed below:

Create Journal Entries Form by querying the specific journal


Navigation Path: Journals -> Enter

Create Encumbrance Form by querying the specific journal


Navigation Path: Journals -> Encumbrance

Account Inquiry Window


Navigation Path: Inquiry -> Account
Select the Primary Balance Type as Encumbrance and then select the
encumbrance type if required. Provide required selection criteria and from the
view output. Users can further drill down to the Journal level and then further
to the sub-ledger details.

Journals Inquiry Window


Navigation Path: Inquiry -> Journals

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.

5.3

Encumbrance Accounting and Relief in Various Scenarios


Relieving Encumbrance means the reversal of funds reserved on
a particular transaction. It is achieved through reversal of the
original entry created for funds reservation. Relieving of
Encumbrance is done in the following ways.
5.3.1 Creating another Encumbrance Entry
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.
5.3.1.1

Final Close of a Requisition


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.
The Transaction created can have the following features:

Balance Type

= E (Encumbrance)

Encumbrance Type = REQ (Requisition)


Accounting
Account

= Cr
Dr

Encumbrance / Charge
Reserve for Encumbrance

Account
5.3.1.2

Final Close of a Purchase Order


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.
The Transaction created can have the following feature
Balance Type

= E (Encumbrance)

Encumbrance Type = PO (Purchase Order)


Accounting
Account

= Cr
Dr

Encumbrance / Charge
Reserve for Encumbrance

Account
5.3.1.3

Creating an Invoice and matched against a PO


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.

5.3.2 Without creating another Encumbrance Entry


Encumbrance created once can be relieved without creating another
encumbrance entry as explained above. This can be achieved as follows.
5.3.2.1

Canceling a Requisition
The Transaction created can have the following features:
Balance Type

= E (Encumbrance)

Encumbrance Type = INV (Invoice)


Accounting
Account (-ve)

= Dr Encumbrance / Charge
Cr Reserve for Encumbrance

Account (-ve)

5.3.2.2

Canceling a Purchase Order


The Transaction created can have the following features:
Balance Type

= E (Encumbrance)

Encumbrance Type = INV (Invoice)


Accounting

= Dr Encumbrance / Charge Account (-ve)


Cr Reserve for Encumbrance Account (-

ve)
5.3.2.3

Rejecting the Receipt


The following accounting entries are created on rejecting
the receipt
Accounting
Account (-ve)

= Dr Encumbrance / Charge
Cr Accrual (-ve)

5.3.2.4

Canceling a matched / unmatched invoice


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:
Accounting
Account (-ve)

= Dr Encumbrance / Charge
Cr Reserve for Encumbrance

Account (-ve)
5.3.3 Relieving Encumbrance Manually
Users can also relieve encumbrances manually in General
Ledger. To do so, Users must make an encumbrance entry.
To relieve encumbrances manually:
1. Navigate to the Enter Encumbrances window.
2. Enter or query an encumbrance batch.
3. Choose More Actions.
4. Choose Reverse Batch.
5. Enter the Period to which to reverse the original encumbrance
entry. The default period is the current accounting period.
6. Post the reversal batch to relieve the encumbrances.

5.4

Viewing Funds Available


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.

Navigation Path:

Inquiry -> Funds

For further information, please refer to section 5 of this


document.

5.5

Year-End Carry-Forward of Encumbrance Processing


Perform yearend processing to identify outstanding purchase order and
requisition encumbrances, to cancel some or all of these encumbrances, and
to carry forward encumbrance, budget, and funds available balances into the
new fiscal year. Users can carry forward encumbrances into the next fiscal
year. Users can also carry forward an equivalent budget amount or funds
available. If users do not carry forward encumbrances, users might want to
cancel existing requisitions and purchase orders behind the encumbrances.
Users can easily identify purchase orders and requisitions behind
encumbrances.
When users carry forward yearend 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.

5.5.1 Year End Carry Forward Check List


Before Users Start:

Run receipt accruals

Post outstanding encumbrance journal entries

Post outstanding budget journal entries

Post outstanding actual journal entries

Mass Cancel In Oracle Purchasing:

Run Encumbrance Details Report to review purchase orders and


requisitions behind encumbrances

Define Mass Cancel for purchase orders

Review Run Mass Cancel Listing to verify cancelled purchase orders

Run Mass Cancel for purchase orders

Define Mass Cancel for requisitions

Review Run Mass Cancel Listing to verify cancelled requisitions

Run Mass Cancel for requisitions

Post encumbrance journal entries from cancellations

5.5.2 Year-End Carry Forward In Oracle General Ledger:

Run Encumbrance Trial Balance for audit trial of encumbrance


before year-end carry forward

Close last period in old year

Open first period in New Year

Open the next encumbrance year

Open the next budget year

Run Year-End Carry Forward with Preview Option set to YES

Review the Carry Forward Report showing proposed carry forward


accts and amounts

Run Year-End Carry Forward with Preview Option set to NO

Review the Carry Forward Report with the updated balances

Run Encumbrance Trial Balance for audit trial of new


encumbrance position

SECTION 6
IMPORTANT TERMS USED IN ENCUMBRANCE
ACCOUNTING
Commitment:
An encumbrance entry of the type commitment is created
by a requisition in PO module. This is created when a requisition is approved
& reserved. The requisition amount created is called a commitment. This
requisition amount is deducted from the Budget.
Obligation: A Purchase Order creates an encumbrance of the type obligation.
This is created when a Purchase Order is approved & reserved. The PO
amount is called an obligation. This PO amount is deducted from the Budget.
Encumbrance Types:
Encumbrance type classifies and track
expenditures according to the purchasing approval process. Users can define
encumbrance types in addition to the General Ledger standard encumbrance
types or disable existing encumbrance types. There is no specific validation
for the Encumbrances type. The main reason for defining Encumbrances type
would be to distinguish expenditures blocked at what level that is at the time
of creating of Requisition or Raising of Purchase order or at the time of
approval of invoice. One specifies an encumbrance type when one enters an
encumbrance and when one perform inquiries.
Encumbrance Entry:
An encumbrance entry is created when users
reserve a requisition or a PO or create an unmatched invoice the type of
encumbrance created is either a Commitment or Obligation. This creates an
encumbrance entry in the interface table called the GL_BC_PACKETS. One
can enter encumbrances only in the functional currency

Reversal Of An Encumbrance Entry: Whether the system accrues


expenses on receipt of goods or on processing of invoices, the system creates
expense distribution lines from purchase order lines at the appropriate time
and automatically relieves the purchase order encumbrance. Users can also
relieve encumbrances manually in General Ledger. To do so, users must make
a reversal encumbrance entry. The action of nullifying the encumbrance is
called De-encumbering.

Following are different scenarios: a) Cancel a PO or a Requisition or an Invoice?


b) Return or Reject a PO or a requisition
c) Finally close a document
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 deencumbers 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.
Carry Forward Of Encumbrance Accounts:
Perform yearend
processing to identify outstanding purchase order and requisition
encumbrances, to cancel some or all of these encumbrances, and to carry
forward encumbrance, budget, and funds available balances into the new
fiscal year. Users can carry forward encumbrances into the next fiscal year.
Users can also carry forward an equivalent budget amount or funds available.
If they do not carry forward encumbrances, they might want to cancel
existing requisitions and purchase orders behind the encumbrances. Users
can easily identify purchase orders and requisitions behind encumbrances.
When Users carry forward yearend 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 choose one of the following Carry Forward rules:
Encumbrances Only:
General Ledger calculates the year-to-date
encumbrance balance as of the end of the year and carries that balance
forward into the beginning balance of the first period of the next fiscal year.
Encumbrances and Encumbered Budget: General Ledger calculates the
year-to-date encumbrance balance as of the end of the year and carries
forward that balance, plus an equivalent budget amount, into the beginning
balance of the first period of the next fiscal year.
Funds Available: General Ledger calculates the funds available as the yearto-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 YearEnd Carry Forward window to carry forward encumbrances at the
end of the fiscal year, all encumbrances automatically go to zero. Users can
execute yearend carry forward a number of times for different ranges of
accounts and different encumbrance types.
Encumbrance Reconciliation: Encumbrance journals created by subledgers (Especially Payables & Purchasing) should be reconciled on a regular
MONTHLY basis. Without monthly reconciliation, encumbrance issues are
usually identified at an organization's year-end when funds and time are very
limited.
Encumbrance Reconciliation Tips:

Payables encumbrances should clear to zero each period.

Purchasing encumbrances in the ledger should balance to the


Encumbrance Detail report in Purchasing.

If they do not:
1) Ensure that the Program - Create Journals and Payables Transfer to
ledger have been run. Post all encumbrance entries.
2) 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.
Funds Available: Funds Available = Budget (Actual Expenses +
Encumbrances)
Funds available are the amount of Funds, available to be encumbered. The
difference between the amount that 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. Oracle provides

the facility to let users check funds available online for requisitions, purchase
orders, and invoices.
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.

Table 1: Scenarios for computation of Funds Available

Amount
Type

How the System Calculates Funds Available

Periodto
Date

Calculates funds available as the budgeted amount for the


period, less actuals and encumbrances for the period.

Quarterto
Date

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.

Extended

Quarterto
Date

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.

Extended

YeartoDate
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.

Projectto
Date

Calculates funds available as the budgeted amount to date,


less actuals and encumbrances to date.

SECTION 7

IMPORTANT TABLES USED FOR ENCUMBRANCE

The following tables are used for the encumbrance transactions.

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

General Ledger Encumbrance - Setup and Usage


August 2006
Author: Vaideeswaran Subramanian, ISC
Oracle Corporation
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