Encumbrance Accounting

 Encumbrance Accounting...

1. What are the setups required to have encumbrance accounting in R12 architecture?

a) Enable the check box for PO encumbrance,INVOICE encumbrance and REQ encumbrance (if required).

Navigation: Purchasing > Setup > Organization > Financial Options > Encumbrance tab

In R12 architecture, the encumbrance types cannot be specified here as the system takes the following values by default.

REQ – Commitment

PO – Obligation

INVOICE – Invoice

b) Ensure that the seeded encumbrance types – Commitment,Obligation and Invoice are enabled in General Ledger > Setup > Journal > Encumbrances

c) Enable the Budgetary Control flag and define the Reserve For Encumbrance (RFE) a/c for the Ledger

Navigation: General Ledger > Setup > Financials > Accounting Setup Manager (ASM) > Accounting Setups

Perform the same setup for Secondary ledger if encumbrance needs to be used for secondary ledger

d) Ensure that the Sub-ledger Accounting Method (SLAM) defined in ASM has encumbrance related Application Accounting Definition (AAD) for the application Purchasing,Payables and Cost Management

For eg: Purchasing Encumbrance Application Accounting Definition, Encumbrance Accrual and Cost Management Encumbrance Application Accounting Definition

Navigation: Cost Management,SLA > SLA > Accounting Setup > Accounting Methods Builder > Methods and Definition > Subledger Accounting Methods > Query the SLAM defined in ASM and verify the AAD for those applications.

Perform the same setup for Secondary ledger if encumbrance needs to be used for secondary ledger

e) Enabling the ‘Reverse Encumbrance’ check box is preferred in R12 also which is already explained under 11i setups.

f) Purchasing period under which the GL date of purchasing document falls and AP period under which the GL date of invoice falls should be in Open status.

2. What are the minimum setups required to have federal budgeting in R12 SLA architecture?

a) The profile option FV:Federal Enabled should be set to Yes

b) The Sub-ledger Accounting Method defined in Accounting Set up Manager should have Federal related Application Accounting Definition for the application Purchasing,Payables,Cost Management and Federal Financials.

For eg: Federal Purchasing Application Accounting Definition,Federal Payables AAD,Federal Costing Application Accounting Definition

Navigation: Cost Management,SLA > SLA > Accounting Setup > Accounting Methods Builder > Methods and Definition > Subledger Accounting Methods > Query the SLAM defined in ASM and verify the AAD for those applications.

Perform the same setup for Secondary ledger if encumbrance needs to be used for secondary ledger.

3. Can I switch from a non Encumbrance environment to an Encumbrance environment and vice versa?

The decision to enable Encumbrance is a one time decision that must be made at time of implementation. Because of enormous data corruption that arise when encumbrance is switched on or off after implementation, Development strongly warns customers not to engage in this practice since they do so at their own risk .

It is clearly documented in Payables User Guide that before switching Encumbrance flags, Customer has to close all the existing POs. Customers who do not abide by this provision and still move ahead with switching the Encumbrance flags do so at their own risk .

Development knows the risks involved in moving ahead with workarounds and will not provide a data fix due to the potential for severe and unrecoverable data corruption.

Development only advice is to final close/cancel all the existing PRs/POs through the Application to ensure the best audit trail and best data integrity before switching off/on the encumbrance.

References:

Bug.8751032

Bug.6792004

Following points need to be done before switching encumbrance

1. Final close all the open PRs/POs

2. If any PO is partially received/billed, either receive and invoice the entire ordered qty or cancel the PO

3. Perform the Create Accounting-Cost Management, Transfer to GL and Posting to create the accounting entries in SLA and GL for the PO receipts already created

4. If any invoice is already matched to the PO/Receipt, validate it and account it and transfer the entries to GL

5. If any invoice is in validated status but not accounted, perform Create Accounting, Transfer to GL and Posting to create the accounting entries in SLA and GL

Note: It is not possible to disable the encumbrance for PO and Invoice in Financial Options if Grants Accounting is used

4. What points need to be taken care before switching from non encumbrance to encumbrance environment and vice versa for Requisitions?

All the open PRs need to be finally closed. There should not be any PR left for doing the Autocreate action while switching the encumbrance for Requisitions.

5. What is the impact if encumbrance types for REQ/PO/INVOICE are changed in between when transactions exist? (Applicable for 11i only)

Scenario: Assume that the PO and Invoice have the same encumbrance type defined as "Obligation". Now you may want to change the invoice encumbrance type from "Obligation" to "Invoice"

a) Active encumbrance may exist for the purchasing documents if the encumbrance type is changed in between inspite of PO being received/billed/canceled/finally closed

b) GL reports and Accounts Inquiry form will show an encumbrance balance when encumbrance accounts are verified based on encumbrance types

Following points need to be ensured before changing the encumbrance types

a) There should not be any Requisitions or Purchase Orders in open status. Either it should be received/billed and accounted or it should be canceled/finally closed

b) There should not be any validated invoices which are left unaccounted. It should be validated as well as accounted and transferred to GL.

Note: It is not possible to have same encumbrance types for PO and Invoice when Grants Accounting is used

6. What needs to be done before changing the Sub-ledger Accounting Method (SLAM) from Standard Accrual to Encumbrance Accrual or vice versa? (Applicable for R12 architecture only)

a) Cancel/Final close all the open PRs/POs

b) Perform the Receipt Accruals-Period end process and Create Accounting process and transfer the entries to GL for the receipts already created

c) Validate and perform Create Accounting for all the invoices and transfer the entries to GL

Also refer to the points given under question 3 for more details.

7. How to prevent PR/PO getting into approval workflow process when there are insufficient funds/ How to prevent PR/PO getting into pre-approved status because of insufficient funds?

Enable the "Reserve" check box before submitting the document for approval so that system will throw the message "Your budgetary control exception failed with exceptions" and it will not go through the approval process as it gets stuck in Incomplete status.

Note: In 11.5.10, this feature is introduced by Patch.4468933 and hence this feature will be available only when the following file versions are in place.

forms/US/POXPOEPO.fmb 115.445.11510.12

forms/US/POXPOERL.fmb 115.243.11510.15

forms/US/POXRQERQ.fmb 115.198.11510.8

resource/POXAPAPC.pld 115.156.11510.3

R12 has this feature in its base version itself

8. How to make the RESERVE check box in Approval form enabled automatically?

As per the current functionality, Reserve checkbox cannot be automatically checked. Enhancement Request 3381444 exists for this suggestion. As a workaround, you can do form personalization to enable the Reserve checkbox by default. Please refer to Note. 468657.1 for more details on "How to do form personalization".

9. What is the significance of ‘Reserve at completion’ flag available under Purchasing > Setup > Organization > Financial options > Encumbrance tab?

If "Reserve at Completion" is checked, the functionality allows the users/preparer to take Reserve action on the Requisition before it is submitted for approval . In this case the ‘Reserve’ checkbox is enabled in the approval window for Requisition.

If "Reserve at Completion" is unchecked, the functionality prevents users/preparer from taking Reserve action on the Requisition before it is submitted for approval. This keeps the system from reducing the Budget (by reserving a Requistion) before it knows whether it is going to be approved or not.

In this case, the reservation does not occur until the required approver (or approvers) have approved the requisition. This is implemented by disabling the ‘Reserve’ checkbox in the approval window for Requisition – thus forcing the user to submit the requisition for approval without reserving and then letting the approval workflow do the reservation after all approvers have given their approval for the requisition.

This flag can only be checked if ‘Use Requisition Encumbrance’ is checked on the same screen .

If either ‘Reserve at Completion’ is No, then the RESERVE checkbox in document approval form will be disabled.

10. How to reserve the funds for a purchasing document in a future period? / How to reserve the funds for a purchasing document which has a GL date falling under closed GL period?

Scenario 1: PR/PO would have been created in Mar-10 with GL date falling under Mar-10 and submitted for approval. But the approver approves the PR/PO in Apr-10 and Mar-10 GL period got closed at that time.

Scenario 2: PR/PO is created with multiple distributions each having GL date falling under current period and next 2 future periods to block the funds in the future period.

As per the standard functionality, encumbrance entries will get created if the GL date of document on which the reserve action is taken falls under open purchasing period and Open GL period. If the document has to be reserved in Future/Closed GL period, then the profile option PO:Validate GL period needs to be set as NO so that GL period will not be validated and system will reserve the document which has a GL date in distributions falling in future or closed GL periods. But the PO period should be opened irrespective of this profile value to reserve the funds and to create the encumbrance entries.

Note: If this profile option has a null value also, you would not be able to reserve funds in future/closed GL period.

Note: This profile option is introduced by Patch.5702204 in 11.5.10 and this feature would not be available prior to 11.5.10.

For R12, Patch.5498063 needs to be applied to have this behavior as explained above.

11. How to reserve the purchasing documents using override limit when there are insufficient funds when the approval is done through forms?

As per the standard functionality, purchasing documents will fail funds check when ‘Absolute’  funds check level is used if funds are insufficient. If you want to have override limit for one particular user so that he can reserve the purchasing document, override amount has to be specified under Budgetary Control Group in GL > Budget > Define > Controls. To reserve the document using this override amount, the profile optionPO:Override funds reservation should be set to Yes or the option ‘Use GL Override’ available in document approval form should be enabled manually. Otherwise this override authority will not take into effect.

12. How to reserve the purchasing documents using override limit when there are insufficient funds when the approval is done through notification summary?

When override amount is specified under Budgetary Control Group, the purchasing document can be reserved and approved from the notification summary by setting the profile option PO:Override funds reservation to Yes even though there are insufficient funds.

When the profile option PO:Override funds reservation is set to No, purchasing document will fail funds check inspite of override amount specified under budgetary control group when the approval action is taken from notification summary. In this case, the user has no option to check the ‘Use GL Override’ check box as this option would be available only in forms. Hence system will throw the ‘Unable to Reserve’ notification letting the approver know that funds reservation was unsuccessful and the document will go to Pre-approved status.Still the document can be reserved and approved using the Try Override option when the approval action is taken from the notification by the user who has the override limit.

13. What set up is required to have the option "Use GL Override" enabled while approving the purchasing documents?

a) When the profile option PO:Override funds reservation is set to Yes, this option "Use GL Override" will get enabled by default once the RESERVE check box is checked. This indicates that the purchasing document can be reserved and approved using override limit when funds are insufficient. If this profile option is set to No, then this option "Use GL Override" will not get enabled automatically. But you can manually enable the check box to reserve the document using override limit.

b) If the ‘Reserve at Completion’ flag is set to NO, this check box will be unchecked and will not be available for change on the document approval form.

14. What are the different look up codes in gl_bc_packets and what is the significance of those codes?

Please refer to Note.399068.1 to know the different look up codes available in gl_bc_packets and to understand the significance of those codes.

15. Purchasing documents get reserved successfully and encumbrance entries get recorded even though the budget account used in the document is not defined in the budget organization and has no budget allocated. Why does it happen?

This is the current functionality of the product. Reservations are made as long as funds checking does not fail. If the budget account is not defined in the budget organization and no budget is allocated, then the funds checking call will always pass and the detail result message will be P01- This account does not require funds check.

Although the accounting transactions are created and captured, they do not impact any budget and do not cause any problems.

Additionally, this behavior can be useful, as it allows money spent for a specific account to be tracked via the Funds Available Inquiry for (GLXIQFUN.FMB) even though no budgetary control is assigned to the account.

16. What are the encumbrance accounting entries that get created from reserving the requisition till the purchase order auto created from this requisition is approved?

Reserve Requisition:

Budget a/c DR @ (PR Ordered qty * Unit Price * Rate) + Non-Recoverable tax – REQ encumbrance type

RFE a/c CR @ (PR Ordered qty * Unit Price * Rate) + Non-Recoverable tax

Auto create Requisition into Purchase Order and approve the PO:

Budget a/c CR @ (PR Ordered qty * Unit Price * Rate) + Non-Recoverable tax – REQ encumbrance type

RFE a/c DR @ (PR Ordered qty * Unit Price * Rate) + Non-Recoverable tax

Budget a/c DR @ (PO Ordered qty * Unit Price * Rate) + Non-Recoverable tax – PO encumbrance type

RFE a/c CR @ (PO Ordered qty * Unit Price * Rate) + Non-Recoverable tax

17. What are the encumbrance accounting entries that get created from approving the purchase order till it is received and billed?

Please refer to Note.386807.1 to understand the encumbrance accounting flow that gets created from approving the purchase order till it is received and billed.

18. How to unreserve the purchasing document in the same period in which the document originally got reserved? / How to get the encumbrance reversal for a purchasing document in the same period in which the encumbrance got created originally?

As per the standard functionality, when an unreserve action is taken for a purchasing document, encumbrance reversal will happen in current GL period considering the system date. If you want the reversal to happen in the same period in which the document originally got reserved, you can use the check box "Use Document GL to Unreserve" so that the reversal will happen based on GL date entered in PR/PO distributions.

This check box would be available only when doing Unreserve/Cancel/Final close where you can manually enable it and get the encumbrance reversal in the same period in which it got created. But if you perform a Reject action on the PO or Return the PR or delete the lines which are in Incomplete,Reserved status, this check box would not be available. In such cases, you may need to set the profile option PO:Use Document GL to Unreserve to Yes so that the encumbrance reversal will happen automatically in the same period in which it got created.

Note: This unreserve action or the encumbrance reversal will happen based on the GL date of purchasing documents only when that past PO period and past GL period are in Open status. If that PO/GL period is already closed, then the reversal would happen only in the current period based on system date inspite of this profile option being set to Yes. But if the profile option PO:Validate GL period is set to No, then the reversal would happen in that past period even if the GL period is closed provided the PO period is opened.

19. What is the impact if the purchasing document is unreserved/canceled/finally closed/rejected in a different period from the one in which it got reserved?

If the purchasing document is unreserved in a different period from the one in which it got reserved, encumbrance reversal would get created in the current period resulting in negative encumbrance leading to sudden increase in funds availability. If Encumbrance Carry forward activity is done to move the encumbrance balance of previous year to current year, then there is no impact because of unreserving the document in a different period. But this carry forward feature is applicable for users having YTD as the amount type in budget organization. If PTD or QTD is used, then you may need to unreserve the documents in the same period to avoid negative encumbrance.

20. Is there any report to see the open encumbrance or active encumbrance for the purchasing documents?

Encumbrance Detailed Report can be used to see the active encumbrance existing on all purchasing documents created and reserved during a particular period or for a specific document type. This report has the following parameters.

a) Accounts from and to – You can specify the encumbrance/budget account for which you want to see the active encumbrance

b) Encumbrance dates from and to – You can specify the GL dates in which the purchasing documents are created and reserved

c) Document type – Requisitions and Purchase orders which can list the active encumbrance for all commitments created from Requisitions and all Obligations created from Purchase orders respectively

d) Vendors from and to – You can specify the vendor to see the active encumbrance existing for purchasing documents created against those vendors

This report will not show the POs that are canceled or finally closed but having active encumbrance (due to code bug or data corruption) or POs having negative active encumbrance caused by any bugs/data corruption.

21. Why does the encumbered amount in Purchase Order distributions not showing 0 value even when the purchase order is canceled or finally closed?

Encumbered amount in Purchase Order distributions will not become 0 on canceling or final closing the purchase order under the following scenarios

a) When the PO is set to accrue at receipt and it is received and delivered before taking the cancel or final close action

b) When the PO is set to accrue at period end and it is billed before taking the cancel or final close action

When the PO is received or billed, the encumbered amount gets consumed and gets converted to Actuals. Since the funds reserved for this PO is used already, encumbered amount will not become 0. But the active encumbrance for this PO should be 0. For more details on Encumbered amount and Active encumbrance, please refer to Note.742621.1.

22. Under what situation encumbrance created on the Purchase Order goes back to the budget or funds availability?

a) When the purchase order is canceled/finally closed/unreserved/rejected without performing any receipt or invoice

b) When the purchase order is set to accrue at receipt and partially received and then canceled/finally closed/unreserved, encumbrance goes back to the budget to the extent of unreceived amount

c) When the purchase order is set to accrue at period end and partially billed and then canceled/finally closed/unreserved, encumbrance goes back to the budget to the extent of unbilled amount

23. Does Alternate account work with encumbrance accounting?

Let us say, XXXX account is used as a budget account in PR/PO and the purchasing document is reserved and approved. Then this XXXX account is end dated and alternate account YYYY is defined in GL. Now perform a PO receipt and transfer the accounting entries to GL or match the invoice to the PO and validate the invoice. Or take some unreserve action on the purchasing document. System will throw error and alternate account cannot be used in any of the transactions performed after end dating the budget account as alternate account does not work with encumbrance accounting.

24.What reference columns in GL_JE_LINES are populated for encumbrance entries created from Purchasing in 11i?

Budgetary (encumbrance) actions in the purchasing module generate records that will be imported into

General Ledger (GL_JE_LINES) as encumbrance entries.

The following reference fields are used to capture and keep PO information in the GL_JE_LINES table.

These reference fields are populated when the Journal source (JE_SOURCE in GL_JE_HEADERS) is

Purchasing.

Budgetary Records from PO (These include reservations, reversals and cancellations):

REFERENCE_1- Source (PO or REQ)

REFERENCE_2- PO Header ID or Requisition Header ID (from po_headers_all.po_header_id or

po_requisition_headers_all.requisition_header_id)

REFERENCE_3- Distribution ID (from po_distributions_all.po_distribution_id or

po_req_distributions_all.distribution_id)

REFERENCE_4- Purchase Order or Requisition number (from po_headers_all.segment1 or

po_requisition_headers_all.segment1)

REFERENCE_5- (Autocreated Purchase Orders only) Backing requisition number (from

po_requisition_headers_all.segment1)

Note: This is applicable only in 11i and not for R12 architecture

25. What are the standard features that cannot be used in encumbered environment?

a) PR/PO created with shop floor destination cannot be reserved.

Note: From R12.1.3 onwards, this feature is available for PR/PO created with shop floor destination with EAM enabled ship to organization can be reserved

b) Consigned/VMI transactions cannot be done when encumbrance is enabled or the vice versa.

c) Global Procurement cannot be done when encumbrance is enabled.

d) Encumbrance accounting cannot happen in Process enabled organization/ OPM does not support encumbrance