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RELEASE 11I:ENCUMBRANCE

ACCOUNTING

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AGENDA

Functional Overview to EncumbranceAccounting.

Setting Up Encumbrance Accounting

Technical Details

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FUNCTIONALITY

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

Track spending by departments before an actual invoice is received.

Ensure that departments don't exceed their budget or are madeimmediately aware when they do

Plan the timing of actual expenditures


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ENCUMBRANCE TYPES

Oracle heavily integrates encumbrance functionality into its purchasing, payablesand ledger modules. To differentiate between the different modules andassociated transactions, encumbrances are normally referred to by differentterms:

Budget (GL)A budget entry is not an encumbrance; however, it represents the beginning ofthe encumbrance process.

Commitment (PO)

A commitment is solely associated with a requisition. A commitment isgenerated to an account when a requisition is approved.

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CONTD.

Purchase Obligation (PO)

A purchase obligation is associated with a purchase order. Whenfunds are reserved on a purchase order, a purchase obligation iscreated.

Invoice Obligation (AP)

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

Actual (AP, GL)

An actual is not an encumbrance; however, it does represent the

culmination of the encumbrance process.

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FUNDS BALANCE

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

GL-> Inquiry->Funds.The funds inquiry form essentially shows the basic encumbrance formula.

Funds Available = Budget Funds - Encumbrances - Actuals

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FUNDS CHECK TYPES

Oracle applications implement three levels of funds checking:

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 of the

funds shortfall is less than their budgetary control group's Override amount.

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

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

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THE ENCUMBRANCE PROCESSEncumbrances flow through most of the procurement process; that is, from the

initial requisition of a product to the posting of journals for an approved invoice.

While considerably more complex examples exist, encumbrances always have thefollowing 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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BUDGETS & ENCUMBRANCES : SETUP

To accommodate its clients' requirements, Oracle hasintegrated a highly flexible budgetary controlenvironment into its financial applications.Fundschecking can be implemented at the following levels:

Individual Account Level Summary Account Level

Budgetary Control Group Level

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ETTING P NCUMBRANCE


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ETTING P NCUMBRANCEACCOUNTING

Step 1: Setting Up GL

Set up the Reserve for Encumbrance account. The Reserve for Encumbrance isa liability account that acts as the offset to all encumbrance journals. Definea value within the liability range. The account should be enabled and of theliability account type

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

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Turn on funds checking for your accounting structure (set of books). Within

the Budgetary Control Options, set 'Enable Budgetary Control' to Yes. This will

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

If you would like an audit trail for budgetary transactions, also set 'Require

Budget Journals' to Yes. The advantage to setting this option to 'Yes' is that

budgetary transactions can be tracked; the disadvantage is that the related

journals add additional data to the database

Navigate to GL: Setup \ Financials \ Books.


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The following encumbrance types are highly recommended:

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

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

Invoice Obligation - An encumbrance you record when an invoice is created.Create additional encumbrance types by navigating to

GL: Setup \ Journal \ Encumbrances.

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Define any necessary budgetary control groups by navigating to

GL-> Budgets -> Define -> Controls.

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Define your budget by navigating to.

GL-> Budgets -> Define -> Budget.

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Define your budget organizations

GL-> Budgets -> Define -> Organizations

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STEP 2: SETTING UP PO

Enable encumbrances within PO.

Assign the encumbrance types from step C to the various encumbrances. Once again, aunique encumbrance type of Invoice Encumbrances is highly recommended.

Navigate to PO: Setup \ Organizations \ Financial Options.

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STEP 3: SETTING UP AP

Examine the Invoice Approvals by navigating to

While not mandatory, it is recommended that all invoice approvals be set to non-postable. This setup facilitates user understanding of encumbrances, as funds won't beeffected until an invoice is fully approved.

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

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TECHNICAL ASPECTS:

Encumbrance Reservations are created inGL_BC_PACKETS

While Encumbrance reversals are created in- MTL_TRANSACTION_ACCOUNTS ( Accounting_line_type = 15

)- RCV_RECEIVING_SUB_LEDGER ( Actual_Flag =E)

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