oracleapps11i encumbrance accounting

8/6/2019 OracleApps11i Encumbrance Accounting

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Oracle Apps 11iOracle Apps 11iEncumbranceEncumbrance

Accounting Accounting

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AgendaAgenda

y Functional Overview to Encumbrance Accounting.

y Setting Up Encumbrance Accounting

y Technical Details



FunctionalityFunctionality

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Educational institutions (Universities & Public School Boards) andgovernment agencies (Federal, Provincial & Municipal) useencumbrance accounting to:

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Track spending by departments before an actual invoice is received.y Ensure that departments don't exceed their budget or are made

immediately aware when they doy Plan the timing of actual expenditures



Encumbrance TypesEncumbrance Types

Oracle heavily integrates encumbrance functionality into its purchasing,payables and ledger modules. To differentiate between the different modulesand associated transactions, encumbrances are normally referred to bydifferent terms:

Budget (GL)

A budget entry is not an encumbrance; however, it represents the beginningof the encumbrance process.

Commitment (PO)

A commitment is solely associated with a requisition. A commitment is

generated to an account when a requisition is approved.

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Contd.Contd.

Purchase Obligation (PO)

A purchase obligation is associated with a purchase order. When fundsare reserved on a purchase order, a purchase obligation is created.

Invoice Obligation (AP)

An invoice obligation is associated with an invoice. Within Oracle, aninvoice obligation is generated to an account when an invoice is approved.

Actual (AP, GL)

An actual is not an encumbrance; however, it does represent theculmination of the encumbrance process.

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Funds BalanceFunds Balance

The simplest overview of an account's current balances can be found within the Funds Inquiryform

Nev: GL-> Inquiry->Funds.

The funds inquiry form essentially shows the basic encumbrance formula.

y Funds Available = Budget Funds - Encumbrances - Actuals

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Funds Check TypesFunds Check Types

Oracle applications implement three levels of funds checking:

Absolute

Users are prevented from processing a given transaction until funds are addedor transferred to the account failing a funds check. Alternatively, a user within a

budgetary control group will be able to process the transaction if the amount ofthe funds shortfall is less than their budgetary control group's Override amount.

Advisory

Users are notified with a message window informing them that the transactionsfailed funds check; however, the transaction is still processed normally.

None

While encumbrances are still tracked, users aren't notified or prevented fromprocessing any given transaction.

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The Encumbrance ProcessThe Encumbrance Process

Encumbrances flow through most of the procurement process; that is, from theinitial requisition of a product to the posting of journals for an approved invoice.

While considerably more complex examples exist, encumbrances always havethe following characteristics:

As a transaction moves through the various procurement stages, theencumbrances will move along with it. (See shaded cells.)

All encumbrances represent an intermediary stage of the procurement process.

When the procurement process is complete for any given transaction, the relatedencumbrance balances should always be zero.

The following table shows a basic encumbrance cycle:

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Setting UpSetting Up EncumbranceEncumbrance AccountingAccounting

Step 1: Setting Up GL

Set up the Reserve for Encumbrance account. The Reserve forEncumbrance is a liability account that acts as the offset to allencumbrance journals. Define a value within the liability range.The account should be enabled and of the liability account type

Navigate to Setup \ Financials \ Key \ Values. Find the following

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Turn on funds checking for your accounting structure (set of books). Withinthe Budgetary Control Options, set 'Enable Budgetary Control' to Yes. This will

enable funds checking within the GL, AP and PO modules.

If you would like an audit trail for budgetary transactions, also set 'RequireBudget Journals' to Yes. The advantage to setting this option to 'Yes' is thatbudgetary transactions can be tracked; the disadvantage is that the related

journals add additional data to the database

Navigate to GL: Setup \ Financials \ Books.



The following encumbrance types are highly recommended:

y Commitment - An encumbrance your record when a requisition is created.

y PO Obligation - An encumbrance you record when a purchase order is created.

y Invoice Obligation - An encumbrance you record when an invoice is created.

Create additional encumbrance types by navigating to

y GL: Setup \ Journal \ Encumbrances.

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Define any necessary budgetary control groups by navigating toDefine any necessary budgetary control groups by navigating to

GLGL--> Budgets> Budgets --> Define> Define --> Controls.> Controls.

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Define your budget by navigating to.Define your budget by navigating to.

GLGL--> Budgets> Budgets --> Define> Define --> Budget.> Budget.

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Define your budget organizationsDefine your budget organizations

GLGL--> Budgets> Budgets --> Define> Define --> Organizations> Organizations

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Step 2: Setting Up POStep 2: Setting Up PO

Enable encumbrances within PO.

Assign the encumbrance types from step C to the various encumbrances. Once again, a

unique encumbrance type of Invoice Encumbrances is highly recommended.

Navigate to PO: Setup \ Organizations \ Financial Options.

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Step 3: Setting Up APStep 3: Setting Up AP

Examine the Invoice Approvals by navigating toWhile not mandatory, it is recommended that all invoice approvals be set to

non-postable. This setup facilitates user understanding of encumbrances, asfunds won't be effected until an invoice is fully approved.

Navigate to AP: Setup\Invoice\ Invoice Hold and release Name.

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TechnicalTechnical AspectsAspects

Encumbrance Reservations are created inGL_BC_PACKETS

While Encumbrance reversals are created inMTL_TRANSACTION_ACCOUNTS

(Accounting_line_type = 15)RCV_RECEIVING_SUB_LEDGER

(Actual_Flag = E)

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oracleapps11i encumbrance accounting

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