1638_encumbrance accounting in oracle ebusiness suite
TRANSCRIPT
-
8/3/2019 1638_Encumbrance Accounting in Oracle Ebusiness Suite
1/28
Encumbrance Accounting & Oracle e-business suite
UKOUG 2004
Leverage features of Encumbrance Accounting in
Oracle e-business suite
Tarun WasanAccenture
-
8/3/2019 1638_Encumbrance Accounting in Oracle Ebusiness Suite
2/28
Encumbrance Accounting & Oracle e-business suite
UKOUG 2004
Agenda
Encumbrance - Concept
Encumbrance Footprint
Accounting Cycle Encumbrance in Sub Ledgers
Encumbrance Year End
Reports and Inquiry
Q&A
-
8/3/2019 1638_Encumbrance Accounting in Oracle Ebusiness Suite
3/28
-
8/3/2019 1638_Encumbrance Accounting in Oracle Ebusiness Suite
4/28
-
8/3/2019 1638_Encumbrance Accounting in Oracle Ebusiness Suite
5/28
Encumbrance Accounting & Oracle e-business suite
UKOUG 2004
Oracle e-business suite an Integrated Application
Seamless and tight integration between
modules
Common data shared across application
modules :- personnel information from HRMS shared
with financials Integration with external applications through Open
Interfaces -
- interface with customer data base,
- Third party data capture systems,
- standardised downloads for reporting Integrated with Internet based application
Service
Financials
HumanResources
Procurement
Marketing
Sales
SupplyChain
OrderManagement
Information In A Single Database
-
8/3/2019 1638_Encumbrance Accounting in Oracle Ebusiness Suite
6/28
Encumbrance Accounting & Oracle e-business suite
UKOUG 2004
Reservation of funds is known as encumbrances. The primary
purpose of tracking encumbrances is to avoid overspending a budget.
Encumbrance accounting = To control spending against budgeted
amounts. To record anticipated expenses / Liabilities as soon as they
happen.
Encumbrance Journals Increase / Decrease the funds available
balance.
Encumbrance?
-
8/3/2019 1638_Encumbrance Accounting in Oracle Ebusiness Suite
7/28
Encumbrance Accounting & Oracle e-business suite
UKOUG 2004
Oracle PayrollOracle
Accounts
Payables
OracleGeneral Ledger
OracleOrder Entry
ExternalSystems
OraclePurchasing
OracleInventory
Oracle Assets
Set of BooksExchange Rates
InvoicesPayments
OracleReceivables
OracleSales
Compensation
DepreciationAsset Transaction
Set of BooksExchange Rates
Set of BooksExchange Rates
Set of BooksExchange Rates
Set of BooksExchange Rates
AccruedReceipts
COGSInventoryActivityWIP Activity
Payroll Activity
Set of BooksExchange Rates
Set of BooksExchangeRates
InvoicesCash ReceiptsAdjustments
Set of BooksExchange Rates
Journals
CommissionsApproved
OracleSales AndMarketing
GL PeriodsFor Forecating
-
8/3/2019 1638_Encumbrance Accounting in Oracle Ebusiness Suite
8/28
Encumbrance Accounting & Oracle e-business suite
UKOUG 2004
Oracle e-business suite Encumbrance footprint
Journal Entries
Invoices Payments
Journal Entries Invoices Receipts
Journal Entries
Additions/Retirements Depreciation Adjustments
Journal Entries Accrued Receipts
Journal Entries Inventory/
WIPactivity
Journal Entries Payroll
Journal Entries Revenue Labor Costs Usage Costs
Accounts
Payables
Inventory
AccountsReceivables
Project
Accounting
Purchasing
Human
Resources
Fixed Assets
GENERAL
LEDGER
EncumbranceEnabled
No Encumbrance
Enabled
-
8/3/2019 1638_Encumbrance Accounting in Oracle Ebusiness Suite
9/28
Encumbrance Accounting & Oracle e-business suite
UKOUG 2004
Encumbrance Cycle
Enter Manually/
Mass Allocations
Import - Purchasing
& Payables
PostEncumbrances
CreateEncumbrances
ReserveFunds
Review FundsAvailable
Year end
Encumbrance
Open Encumbrance
Year
Enable BudgetaryControl and
Create Budgets
-
8/3/2019 1638_Encumbrance Accounting in Oracle Ebusiness Suite
10/28
Encumbrance Accounting & Oracle e-business suite
UKOUG 2004
Funds Available
Budget Balances
Actual Balances
EncumbranceBalances
Oracle GeneralLedger
OracleE-Business
Suite
The following equation always holds true:-
Funds Available = Budget (Actual + Encumbrance)
-
8/3/2019 1638_Encumbrance Accounting in Oracle Ebusiness Suite
11/28
Encumbrance Accounting & Oracle e-business suite
UKOUG 2004
In Payables
4) Enter invoice
Complete by entering invoice number, date and amount. Navigate to match and in the find screen the PO number will be displayed, if not correct
Navigate to find. The PO information will be displayed. Flag the lines and select Match.
PO distributions lines will be copied to Invoice distributions.
Approve invoice.
5) Transfer to GL
Select the Payables Transfer to General Ledger. Complete parameters and submit request. This will transfer all journal lines created in AP to GL.
In General Ledger
6) Review actual and encumbrance journal entries.
To complete the process run the concurrent program: Create Journal Entries in General Ledger. This will create the journal entries out of
transactions that pass funds reservation from Purchasing and Payables. This program creates the entries that represent the movement formObligation to commitment to other. This will result in un-posted entries in GL.
The entries should be debit to the expense account and credit to the payables control (liability) account.
Find the journal and select Review Journal. The entry at this point is a single sided credit entry to the expense account. The debit entry is to the
encumbrance account that has been defined in the set of books :Reserve for encumbrances account will be created at posting.
-
8/3/2019 1638_Encumbrance Accounting in Oracle Ebusiness Suite
12/28
-
8/3/2019 1638_Encumbrance Accounting in Oracle Ebusiness Suite
13/28
Encumbrance Accounting & Oracle e-business suite
UKOUG 2004
Purchasing Encumbrance
PeriodEnd Accruals and Encumbrance
For periodend accruals when using encumbrances, Purchasing creates
a reversing entry for the encumbered amount corresponding to an expense while
creating an accrual entry for the receipt in the general ledger. When you accrue
your receipts, Purchasing ensures that you do not duplicate entries for the period.
At the beginning of the following period, you reverse the accrual entry for the
expense and recreate the encumbrance entry you reversed in the previous periodusing General Ledger.
If you use non-recoverable or partially recoverable tax, the Non-recoverable tax
amount is included in your encumbrances.
Inventory and Perpetual Expense Accruals and Encumbrance
For perpetual expense and inventory accruals, Purchasing and Inventory create a
reversing entry for the encumbered amount at the time you deliver the goods to the
final inventory or expense destination. When an invoice is matched to a purchase
order and approved in Payables, it is not necessary for Payables to record an
encumbrance for the expense. However, Payables will record an encumbrance for
invoice price variance or exchange rate variance, if the variance exists.
-
8/3/2019 1638_Encumbrance Accounting in Oracle Ebusiness Suite
14/28
Encumbrance Accounting & Oracle e-business suite
UKOUG 2004
Requisition Encumbrance Cycle
Create Req
Submit for ApprovalApprove requisition
Autocreate Requisition
onto PO
Approve PO
Debit Expense
Credit RFE
Req Encumbrance
Reversed
Debit Expense
Credit RFE PO
Reject @ Approval
Return to Requestor
Cancel PO Final Close PO
Control Cancel Req
Reverse ExpenseDebit and RFE
Credit -ve posting
Final Close Req
Credit Expense
Debit RFE
Credit Expense
Debit RFE
Reverse Expense
Debit and RFE
Credit -ve posting
Credit Expense
Debit RFE
Credit Expense
Debit RFE
-
8/3/2019 1638_Encumbrance Accounting in Oracle Ebusiness Suite
15/28
Encumbrance Accounting & Oracle e-business suite
UKOUG 2004
Purchase Order Encumbrance Cycle
Requisition encumbrance are relieved when Requisitions are converted to PO.
At this stage, the purchase order encumbrance cycle is initiated depending on the
type of purchase order document raised.
Broadly, a purchase order document creates an encumbrance to debit expense and
credit the reserve for encumbrance account.
Blanket PO
Contract PO
Planned PO
-
8/3/2019 1638_Encumbrance Accounting in Oracle Ebusiness Suite
16/28
Encumbrance Accounting & Oracle e-business suite
UKOUG 2004
Blanket PO Encumbrance
Create Blanket PO
Submit for ApprovalApprove Blanket PO
No Encumbrance
Generated
Create a Blanket PO
release
Approve Blanket PO
Release
Debit Expense
Credit RFE
Create Contract PO
Submit for ApprovalApprove Contract PO
No Encumbrance
Generated
Create a Standard PO
referencing ContractApprove Standard PO
Debit Expense
Credit RFE
Contract PO Encumbrance
-
8/3/2019 1638_Encumbrance Accounting in Oracle Ebusiness Suite
17/28
Encumbrance Accounting & Oracle e-business suite
UKOUG 2004
Planned Purchase Order
Create a Planned PO
submit for approvalApprove Planned PO
Debit Expense
Credit RFE
Create a Planned
PO scheduled release
Approve scheduled
release
Credit Expense
Debit RFE for
release amount PPO
Debit Expense
Credit RFE RE
Cancel scheduled
release Reverse Expense
Debit and RFE
Credit -ve posting
Approve scheduled
release
Credit Expense
Debit RFE
-
8/3/2019 1638_Encumbrance Accounting in Oracle Ebusiness Suite
18/28
Encumbrance Accounting & Oracle e-business suite
UKOUG 2004
Relieving encumbrances
On receipt of goods or matching invoices against approved POs, Oracle
accrues expenses and relieves PO encumbrance.
Manual option to create or relieve encumbranceCreate EncumbranceJournal directly in GL.
Accounting entries for the Encumbrance journal category record
encumbrances, exchange rate variances, and invoice price variances.
-
8/3/2019 1638_Encumbrance Accounting in Oracle Ebusiness Suite
19/28
Encumbrance Accounting & Oracle e-business suite
UKOUG 2004
Budgetary Controls in PayablesIfyou use Oracle General Ledgers Budgetary Control feature, you can check funds
before you save a transaction and you can have the Invoice Validation processautomatically create encumbrances to reserve funds for your transactions. For
example, when you enter an invoice, you can use the Funds Check program to check
if you have available budgeted funds to pay for an invoice or invoice distribution.
If you select absolute budgetary control in General Ledger, then Invoice Validation
places an Insufficient Funds hold on any invoice that fails funds checking. If you use
advisory budgetary control, Payables allows the invoice to pass Invoice Validation,
even if it fails funds checking. During Invoice Validation, Payables creates
encumbrances to reserve funds against the budgets you define in Oracle General
Ledger. When you create the accounting entries for the transactions, it relieves the
encumbrances.
As the final step of budgetary control in Payables, if you enable Use POEncumbrance in the Financials Options window, Oracle Purchasing automatically
creates encumbrance entries to reserve funds for invoice expenditures against the
budgets you define in Oracle General Ledger. Funds checking and budgetary control
include non recoverable tax as part of the item cost to fully recognize the
commitment because non recoverable tax becomes part of the acquisition cost of the
item.
-
8/3/2019 1638_Encumbrance Accounting in Oracle Ebusiness Suite
20/28
Encumbrance Accounting & Oracle e-business suite
UKOUG 2004
Encumbrance in Payables
Purchasing and Payables create encumbrances and encumbrance reversals againstthe budgets defined in General Ledger.
Encumbrance with Accrual Basis Accounting
The encumbrances Purchasing and Payables create depend on whether
the invoice is purchase order matched and whether On Receipt
(Perpetual) or Period End Accrual method is used.
Unmatched Invoice: If you enable the Use PO Encumbrance Financials option andenter an unmatched invoice, Payables creates an expense encumbrance during
invoice validation and reverses this encumbrance during creation of invoice
accounting entries.
Matched Invoice, On Receipt (Perpetual) Accrual
If using On Receipt Accrual method for expense items in Purchasing,
Purchasing creates an encumbrance for the goods when the
purchase order is approved, then reverses that encumbrance when it
records the actual expense at the time of delivery of goods. When
the invoice is matched to a purchase order and validated in
Payables, it is not necessary for Payables to record an encumbrance for the expense
E b A i & O l b i i
-
8/3/2019 1638_Encumbrance Accounting in Oracle Ebusiness Suite
21/28
Encumbrance Accounting & Oracle e-business suite
UKOUG 2004
Encumbrance in Payables
Matched Invoice, Period End Accrual: If you use the Period End Accrualmethod for your expense items in Purchasing, Payables reverses the PO
encumbrances. When the invoice is matched to a purchase order and validated
in Payables, Payables records an encumbrance for the expense only if the PO
Encumbrance Type and the Invoice Encumbrance Type in the Financial Options
window are the same. Payables creates an encumbrance for any quantity
variance, invoice price variance, or exchange rate variance even if the PO
Encumbrance Type and the Invoice Encumbrance Type are the same.
Encumbrance with Cash Basis Accounting
If you use the cash basis accounting method, Payables creates encumbrances
during Invoice Validation and relieves them during create payment accounting
entries. Payables prorates your encumbrance reversal based on the invoice
payment amount. Payables reinstates the invoice encumbrance when payment
is cancelled.
Encumbrance with Combined Basis Accounting
If you use the combined basis accounting method, Payables creates
encumbrances for your primary accrual set of books only.
E b A ti & O l b i it
-
8/3/2019 1638_Encumbrance Accounting in Oracle Ebusiness Suite
22/28
Encumbrance Accounting & Oracle e-business suite
UKOUG 2004
When using Summary Template Budgetary Control
1. At Budget Organisation level have funds check at advisory / None
2. At Summary template level have absolute.
3. Therefore if insufficient funds exist for a particular account but the amount is still under the summary
level you can proceed.
E.g. Rent = 1000
Rates = 1000
Water 1000
Total 3000
Therefore as long as the invoice / PO is less than 3000 you can reserve the funds against any of the three
accounts.
E b A ti & O l b i it
-
8/3/2019 1638_Encumbrance Accounting in Oracle Ebusiness Suite
23/28
Encumbrance Accounting & Oracle e-business suite
UKOUG 2004
Notes: -
1. Assign Reserve for Encumbrances account to your SOB
2. Enable Budgetary control for your SOB
3. Open Encumbrance year
4. Set up Budgets as per normal
5. Set up Budget Organisations ensuring that if you are using encumbrances and budgetary control for ranges ofaccounts:-
A.Automatic encumbrance accounting box (to create Journal entries from your Feeder systems (Payables / Purchasing)
B.Select funds check level (Advisory / Absolute)
C.Amount type
D.Boundary
E.Funding budget against which you want GL to check or reserve funds (Must be Journal entry budget type)
3. Enter Budget Journals
4. Create Summary Journals to total ranges of accounts5. Enable Encumbrances in Payables financial options
Encumbrance Accounting & Oracle e business suite
-
8/3/2019 1638_Encumbrance Accounting in Oracle Ebusiness Suite
24/28
Encumbrance Accounting & Oracle e-business suite
UKOUG 2004
Year End Encumbrance Sub Ledger
Identify outstanding encumbrances in Purchasing to determine whether to cancel or carry
forward.
Review PO and Requisition encumbrances using a couple of standard reports:
- Encumbrance Details Report
- Open Encumbrance Balance with Transaction Detail Report
- Define Mass Cancel criteria to select encumbrances to be cancelled
- Run Mass Cancel
- Post encumbrances after running Journal Import in GL
- Review the Encumbrance Trial Balance Report in GL
- Close last period of the current fiscal year.
- Open first period of the next fiscal year.
- Open next encumbrance year
- Open next budget year.
- Carry forward year end encumbrances
Encumbrance Accounting & Oracle e business suite
-
8/3/2019 1638_Encumbrance Accounting in Oracle Ebusiness Suite
25/28
Encumbrance Accounting & Oracle e-business suite
UKOUG 2004
Year End Encumbrance General Ledger
General Ledger carries forward year end encumbrances into the following year asbeginning balance.
Choose from the following carry forward rules:
1.Encumbrance Only :- GL calculates the YTD encumbrance balances as at the
end of a fiscal year and carries forward those balances as the beginning balance ofthe next fiscal.
2.Encumbrance and Encumbered Budgets :-GL calculates YTD encumbrance
balances as at the end of a fiscal year and carries forward the encumbrance
balance plus an equivalent budget amount, as beginning balance of the first
period in the next fiscal year.
3.Funds Available :- GL calculates funds available as year to date budget balances
less YTD actual and encumbrance balances. GL carries forward budget amounts
equal to funds available at the end of the fiscal year as beginning balances of the
first period of the next year.
Encumbrance Accounting & Oracle e business suite
-
8/3/2019 1638_Encumbrance Accounting in Oracle Ebusiness Suite
26/28
Encumbrance Accounting & Oracle e-business suite
UKOUG 2004
Budgetary Control, Funds Checkingand Encumbrance
Questions often asked ?
Automatic Encumbrance journals from the sub ledgers are only created
when the budgetary control flag is enabled for the set of books.
Can encumbrance be enabled without allowing budgetary control for the set of books?
If you make entries to an account that funds has been budgeted to, the summary level checking feature works.
However, if you choose another account combination in the range and enter expenditures under the Summary Budget Amount, you
receive an error message.
Funds level check at the Budget Organization level should be set to ADVISORY or NONE if funds level checking of ABSOLUTE is
done at the summary level. If you have absolute set at more than one level, then a transaction must pass
all levels or it will fail.
Note: - Budgetary control / Funds check only works for those account ranges that have been defined in Budget
Organisations with budgetary control / funds check levels defined. Even if no budget amounts have been assigned tothese accounts budgetary control / funds check will still take place when an invoice is entered and approved.
For those accounts / account ranges that have no encumbrance / funds check levels assigned to them, you will be able to
create invoice distribution amounts against, whatever the amount, and it will approve the Invoice.
Note: - If you create a budget org with segment values 0000 ZZZZ for all segments and apply budgetary controls /
funds check levels you will have funds check for all accounts.
No drill downs on Encumbrance JVs from GL to sub ledgers
Encumbrance Accounting & Oracle e-business suite
-
8/3/2019 1638_Encumbrance Accounting in Oracle Ebusiness Suite
27/28
Encumbrance Accounting & Oracle e-business suite
UKOUG 2004
Encumbrances Report
Standard Reports
Purchasing:Requisition Distribution Detail Report
Purchase Order Distribution Detail Report
Encumbrance Detail Report
General Ledger:Encumbrance Trial Balance Report
General Ledger Report
Accounts Analysis Report
Other Options:
FSG reportsOnline inquiry
Encumbrance Accounting & Oracle e-business suite
-
8/3/2019 1638_Encumbrance Accounting in Oracle Ebusiness Suite
28/28
Encumbrance Accounting & Oracle e business suite
UKOUG 2004
Tarun Wasan
email: [email protected]
Leverage features of Encumbrance Accountingin Oracle e-business suite
THANK YOU
Q&A?