General Ledger

Encumbrance
Brownbag
An Oracle White Paper
August 2006
 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 Payables18
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 over–expenditure 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 over–expenditures 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.
 Entering Budget
 Encumbrance Accounting Flow from Purchasing and Payables
 Reviewing Encumbrances in GL
 Encumbrances Accounting and Relief in Various Scenarios
 Viewing Funds Available
 Year–End Encumbrance Processing

5.0 Entering Budget

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

Navigations: BudgetsEnterJournals
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 Jan-03
Figure 11: Check Budget Amount through Funds Available form

Figure 11: The above figure shows the Funds available for the Account 01-130-7230-0000-000 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 Expense CR RFE DR RFE CR

Req Reserve 1000 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 01-130-7230-0000-000
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 = CCID given in PO Distribution
Accounting when the journal gets posted in General Ledger

Document Expense DR Expense CR RFE DR RFE CR

Req Reserve 1000 1000
PO Reserve 1000 1000
Req Unreserve 1000 1000
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:

Document Exp Dr Exp CR RFE DR RFE CR REC DR REC REC

ACC DR ACC CR
PO Reserve 1000 1000
PO Enc 1000 1000
Relief
Charge 1000 1000
Accnt
 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)
 Document Exp Dr Exp CR RFE DR RFE CR AP AP
Accrual Accrual
DR CR
PO Enc 1000 1000
Relief
Invoice 1000 1000
Enc create
Inv Enc 1000 1000
Relief
Charge 1000 1000
Accnt

Figure 19: Invoice Creation and Accounting in Payables

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 Create Encumbrance Journals using Manual Entries

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 = Cr Encumbrance / Charge Account
Dr 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 = Cr Encumbrance / Charge Account
Dr 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 = Dr Encumbrance / Charge Account (-ve)
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 = Dr Encumbrance / Charge Account (-ve)
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 = Dr Encumbrance / Charge Account (-ve)
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 year–end 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 year–end 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 de-encumbers 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 year–end 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 year–end 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 year-to-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 Year–End Carry Forward window to carry forward
encumbrances at the end of the fiscal year, all encumbrances automatically go to zero. Users can
execute year–end carry forward a number of times for different ranges of accounts and different
encumbrance types.
Encumbrance Reconciliation: Encumbrance journals created by sub-ledgers (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

Period–to–Date Calculates funds available as the budgeted amount for the period, less actuals
and encumbrances for the period.

Quarter–to–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
Extended
$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.
Quarter–to–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
Extended
$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.
Year–to–Date Calculates funds available as the budgeted amount to date for the year, less
Extended 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.
Project–to–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

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