Hello All,
My query is if we are cancelling the PO without unreserving the amt, Will that unreserve and cancel or it simply cancels the PO by blocking the amt.
Please let me know the detials.
Thanx
Purchase Order
Hi,
Here there are two scenarios to be considered.
You can create a <font color="red"><b>PO with Budgetary Control Enabled </b> </font id="red"> and <font color="red"><b>Without Budgetary Control</b></font id="red">.
<font color="red"><b>Case1:</b></font id="red">
When you create a PO with Budgetary Control Enabled then as soon as the PO is approved funds will be reserved.
And when you cancel the PO the funds will be unreserved automatically.
<font color="red"><b>Case2:</b></font id="red">
When you create a PO without a budgetary control then no funds are reserved upon its approval.
So when you cancel the PO there is no question of unreserving the funds.
In your case I understand that you are creating a PO without a budgetary control. Because of this funds are not reserved after approving the PO.
So when you cancel there will be no question of unreserving the amounts as there is no amount which has been reserved.
It simply cancels the Purchase Order.
If you still have any queries please bounce it back to the Forum so that respective members can reply.
<font color="blue"><i><b>Best Regards & Thanks,
Arun Reddy[:)]</b></i></font id="blue">
Here there are two scenarios to be considered.
You can create a <font color="red"><b>PO with Budgetary Control Enabled </b> </font id="red"> and <font color="red"><b>Without Budgetary Control</b></font id="red">.
<font color="red"><b>Case1:</b></font id="red">
When you create a PO with Budgetary Control Enabled then as soon as the PO is approved funds will be reserved.
And when you cancel the PO the funds will be unreserved automatically.
<font color="red"><b>Case2:</b></font id="red">
When you create a PO without a budgetary control then no funds are reserved upon its approval.
So when you cancel the PO there is no question of unreserving the funds.
In your case I understand that you are creating a PO without a budgetary control. Because of this funds are not reserved after approving the PO.
So when you cancel there will be no question of unreserving the amounts as there is no amount which has been reserved.
It simply cancels the Purchase Order.
If you still have any queries please bounce it back to the Forum so that respective members can reply.
<font color="blue"><i><b>Best Regards & Thanks,
Arun Reddy[:)]</b></i></font id="blue">
Arun,
I am completely lost. I need more explaination. If my budget is consumed when a PO is approved, it means the fund goes out from budget account code. The question is where does it go? Does it has any effect on our actual?
2) What happen when the invoice arrives and it is matched with the PO?
I will appreciate if there is any figure and account code to demostrate this.
I am completely lost. I need more explaination. If my budget is consumed when a PO is approved, it means the fund goes out from budget account code. The question is where does it go? Does it has any effect on our actual?
2) What happen when the invoice arrives and it is matched with the PO?
I will appreciate if there is any figure and account code to demostrate this.
yemfola,
Budgets usually used with governamental situations.
The story starts with FUNDS. Where an amount is allocated for a specific purpose and a fund is created. Say 10,000.-
When a PO is created, it creates journals for budgets too. It freezez the amount so no one else can use that amount in that budget.
When a PO for $500 is aproved OFA will auto generate accounting and FREEZE $500.- in that fund. So now there are $9,500.- which can be used.
Subsequently when PO is paid against an invoice, those $500.- are paid.
I hope its not too confusing
Budgets usually used with governamental situations.
The story starts with FUNDS. Where an amount is allocated for a specific purpose and a fund is created. Say 10,000.-
When a PO is created, it creates journals for budgets too. It freezez the amount so no one else can use that amount in that budget.
When a PO for $500 is aproved OFA will auto generate accounting and FREEZE $500.- in that fund. So now there are $9,500.- which can be used.
Subsequently when PO is paid against an invoice, those $500.- are paid.
I hope its not too confusing
Hi Yemfola,
Let me give you a detailed explanation by taking one real time example.
Hope this will clear your doubt.
<b>These are the brief setups for your clear understanding.</b>
<font color="red"><b>Accrue on receipt = Y
Destination type = Expense
Item = expense Item</b></font id="red">
The flow of accounting entries are as follows:
<font color="red"><b>1. When you reserve a PO:</b></font id="red">
Budget Account is Debited.
Nature of entry is Encumbrance.
<font color="red"><b>2.When you receive the PO:</b></font id="red">
Receiving Inventory Account is Debited.
AP Expense accrual Account is Credited.
Nature of Entry is Actual
<font color="red"><b>3. When you deliver the PO:</b></font id="red">
Expense Charge Account is Debited.
Receiving Inventory Account is Credited.
Budget Account is Credited.
Nature of Entry for Expense Charge Account and Receiving Inventory Account is Actual whereas for Budget Account it is Encumbrance.
<font color="red"><b>4. When you create an invoice for the PO:</b></font id="red">
AP Expense accrual Account is Debited.
AP Liability Account is Credited.
Nature of entry is Actual.
These are the respective accounts getting effected when you create a PO with Budgetary Control.
Like this we can plot 'N' number of scenarios.
I have purely explained on based of the accounting terminology.
If you still have any doubts you can bounce it back to the forum so that respective members can reply.
<font color="blue"><b>Best Regards & Thanks,
Arun Reddy[:)]</b></font id="blue">
Let me give you a detailed explanation by taking one real time example.
Hope this will clear your doubt.
<b>These are the brief setups for your clear understanding.</b>
<font color="red"><b>Accrue on receipt = Y
Destination type = Expense
Item = expense Item</b></font id="red">
The flow of accounting entries are as follows:
<font color="red"><b>1. When you reserve a PO:</b></font id="red">
Budget Account is Debited.
Nature of entry is Encumbrance.
<font color="red"><b>2.When you receive the PO:</b></font id="red">
Receiving Inventory Account is Debited.
AP Expense accrual Account is Credited.
Nature of Entry is Actual
<font color="red"><b>3. When you deliver the PO:</b></font id="red">
Expense Charge Account is Debited.
Receiving Inventory Account is Credited.
Budget Account is Credited.
Nature of Entry for Expense Charge Account and Receiving Inventory Account is Actual whereas for Budget Account it is Encumbrance.
<font color="red"><b>4. When you create an invoice for the PO:</b></font id="red">
AP Expense accrual Account is Debited.
AP Liability Account is Credited.
Nature of entry is Actual.
These are the respective accounts getting effected when you create a PO with Budgetary Control.
Like this we can plot 'N' number of scenarios.
I have purely explained on based of the accounting terminology.
If you still have any doubts you can bounce it back to the forum so that respective members can reply.
<font color="blue"><b>Best Regards & Thanks,
Arun Reddy[:)]</b></font id="blue">
Hi Arun,
Thank you for reponse and tutorial.
Please what do you mean , when you say
1 when PO is delivered, that is point 3, check point 2
2 When you create invoice? point 4
Is creating invoice, the same thing as matching invoice against the receipt or PO?
If you enable budgetary control in your SOB, it will mandate you to create encumbrance account. What is the use of this encumbrance account? This is where I really need explaination
Thanks for your help
yemfola
Thank you for reponse and tutorial.
Please what do you mean , when you say
1 when PO is delivered, that is point 3, check point 2
2 When you create invoice? point 4
Is creating invoice, the same thing as matching invoice against the receipt or PO?
If you enable budgetary control in your SOB, it will mandate you to create encumbrance account. What is the use of this encumbrance account? This is where I really need explaination
Thanks for your help
yemfola
-
SIVAKUMAR_G
- Posts: 194
- Joined: Tue May 15, 2007 7:45 am
- Location: United Arab Emirates
Hi
Arun: I am sorry to say this your accounting entries are completely wrong
Please refer Metalink Document
Note:121860.1 - Purchasing Setup: Encumbrance Accounting
Note:121858.1 - Purchasing Encumbrance Accounting Concepts and Process Model
I will explain nutshell and you can refer to above docs to get complete set up required for Encumbrance
First of all Oracle Budgeting, Encumbrance and Fund Availability works based on Expense Based Control and not really actual Fund based control (Meaning it does not work based on Cash Availability at Bank)
In other words, even if you have the Budget amount available for an expense and create an Invoice and complete and make Payment for the invoice the system cannot check automatically the availability of Bank Balance and will not put a Block when there is no fund.
The only way to control this is, You Have to go to Account Inquiry Screen in GL and check the Bank Balance for the Bank Account and input the Bank balance in the Payment Batch then only system will prevent if the Invoice amount exceeds available Balance for the Payment Batch - This Functionality is not appreciated by many clients
<b><font color="red">I will explain here an EXPENSE ITEM SCENARIO and NOT INVENTORY SCENARIO</font id="red"></b>
First You create Budget Journals and post in GL
For Example
Repairs and Maintenance Account - 100000 USD
There are Three Types of Encumbrance
a)At the time of Purchase Requisition Creation - It is called Commitment
This will work only if you enable in Financial Options in PO or AP
Example: You create a PR for USD 25000
This Generates an Accounting Entry
Repairs and Maintenance A/c Dr - 25000 (Encumbrance Journal - A/c you enter in Distribution)
Reserve for Encumbrance A/c Cr - 25000 (This Account picked up from GL SOB and populate the entry only when it is posted in GL)
Again there are two options when you click the Reserve Funds Check box in approve Button then you are reserving this amount against the Budget of 100000 and Balance fund available is 75000 USD
The Reserve Funds check box is enabled only if you set the Reserve at Completion check box enabled in Financial Options in AP or PO
If this check box is not enabled then you cannot reserve funds before approval and only after approval the fund is reserved and fund availability reduces to 75000 USD
Budget Encumbrance Actual Fund Availability
100000 25000(Commitment) 0 75000
b) Encumbrance during PO is called Obligation.
This will work only if you enable in Financial Options in PO or AP
When you convert a PR to PO then following entries are generated when you sent for approval and again it depends on Reserve for funds check box at approval button
PO Approval creates following entry
Repairs and Maintenance A/c DR - 25000 (Encumbrance Journal - A/c you enter in Distribution)
Reserve for Encumbrance A/c Cr - 25000 (This Account picked up from GL SOB and populate the entry only when it is posted in GL)
It reverses the Purchase Requisition Entry also
Reserve for Encumbrance A/c Dr - 25000 (This Account picked up from GL SOB and populate the entry only when it is posted in GL)
Repairs and Maintenance A/c Cr - 25000 (Encumbrance Journal - A/c you enter in Distribution)
Budget Encumbrance Actual Fund Availability
100000 25000(Obligation) 0 75000
c) When you create an Invoice and match it to PO in Payables
it is called Invoice Encumbrance
Repairs and Maintenance A/c Dr - 25000 (Encumbrance Journal till you approve and account for it)
Reserve for Encumbrance A/c Cr - 25000 (Encumbrance Journal till you approve and account for it)
It reverses the Purchase Order Entry also
Reserve for Encumbrance A/c Dr - 25000 (This Account picked up from GL SOB and populate the entry only when it is posted in GL)
Repairs and Maintenance A/c Cr - 25000 (Encumbrance Journal - A/c you enter in Distribution)
Budget Encumbrance Actual Fund Availability
100000 25000(Invoice) 0 75000
When the Invoice is approved and accounted in Payables
Repairs and Maintenance A/c Dr - 25000 (Actual Journal)
Liability A/c Cr - 25000 (Actual Journal)
Budget Encumbrance Actual Fund Availability
100000 0 25000 75000
The accounting Entries are slightly different for Inventory Items and it depends on the Encumbrance in Inventory Organization also
One Common myth about Encumbrance is many people think it is used only by Government sector.
It is not so and it is used by many organizations where they want to place strict control over expenses
This cycles you can check after doing the set up and creation of Entry
in Funds Inquiry Screen in GL at every stage.
Hope this helps
Regards
Sivakumar
Arun: I am sorry to say this your accounting entries are completely wrong
Please refer Metalink Document
Note:121860.1 - Purchasing Setup: Encumbrance Accounting
Note:121858.1 - Purchasing Encumbrance Accounting Concepts and Process Model
I will explain nutshell and you can refer to above docs to get complete set up required for Encumbrance
First of all Oracle Budgeting, Encumbrance and Fund Availability works based on Expense Based Control and not really actual Fund based control (Meaning it does not work based on Cash Availability at Bank)
In other words, even if you have the Budget amount available for an expense and create an Invoice and complete and make Payment for the invoice the system cannot check automatically the availability of Bank Balance and will not put a Block when there is no fund.
The only way to control this is, You Have to go to Account Inquiry Screen in GL and check the Bank Balance for the Bank Account and input the Bank balance in the Payment Batch then only system will prevent if the Invoice amount exceeds available Balance for the Payment Batch - This Functionality is not appreciated by many clients
<b><font color="red">I will explain here an EXPENSE ITEM SCENARIO and NOT INVENTORY SCENARIO</font id="red"></b>
First You create Budget Journals and post in GL
For Example
Repairs and Maintenance Account - 100000 USD
There are Three Types of Encumbrance
a)At the time of Purchase Requisition Creation - It is called Commitment
This will work only if you enable in Financial Options in PO or AP
Example: You create a PR for USD 25000
This Generates an Accounting Entry
Repairs and Maintenance A/c Dr - 25000 (Encumbrance Journal - A/c you enter in Distribution)
Reserve for Encumbrance A/c Cr - 25000 (This Account picked up from GL SOB and populate the entry only when it is posted in GL)
Again there are two options when you click the Reserve Funds Check box in approve Button then you are reserving this amount against the Budget of 100000 and Balance fund available is 75000 USD
The Reserve Funds check box is enabled only if you set the Reserve at Completion check box enabled in Financial Options in AP or PO
If this check box is not enabled then you cannot reserve funds before approval and only after approval the fund is reserved and fund availability reduces to 75000 USD
Budget Encumbrance Actual Fund Availability
100000 25000(Commitment) 0 75000
b) Encumbrance during PO is called Obligation.
This will work only if you enable in Financial Options in PO or AP
When you convert a PR to PO then following entries are generated when you sent for approval and again it depends on Reserve for funds check box at approval button
PO Approval creates following entry
Repairs and Maintenance A/c DR - 25000 (Encumbrance Journal - A/c you enter in Distribution)
Reserve for Encumbrance A/c Cr - 25000 (This Account picked up from GL SOB and populate the entry only when it is posted in GL)
It reverses the Purchase Requisition Entry also
Reserve for Encumbrance A/c Dr - 25000 (This Account picked up from GL SOB and populate the entry only when it is posted in GL)
Repairs and Maintenance A/c Cr - 25000 (Encumbrance Journal - A/c you enter in Distribution)
Budget Encumbrance Actual Fund Availability
100000 25000(Obligation) 0 75000
c) When you create an Invoice and match it to PO in Payables
it is called Invoice Encumbrance
Repairs and Maintenance A/c Dr - 25000 (Encumbrance Journal till you approve and account for it)
Reserve for Encumbrance A/c Cr - 25000 (Encumbrance Journal till you approve and account for it)
It reverses the Purchase Order Entry also
Reserve for Encumbrance A/c Dr - 25000 (This Account picked up from GL SOB and populate the entry only when it is posted in GL)
Repairs and Maintenance A/c Cr - 25000 (Encumbrance Journal - A/c you enter in Distribution)
Budget Encumbrance Actual Fund Availability
100000 25000(Invoice) 0 75000
When the Invoice is approved and accounted in Payables
Repairs and Maintenance A/c Dr - 25000 (Actual Journal)
Liability A/c Cr - 25000 (Actual Journal)
Budget Encumbrance Actual Fund Availability
100000 0 25000 75000
The accounting Entries are slightly different for Inventory Items and it depends on the Encumbrance in Inventory Organization also
One Common myth about Encumbrance is many people think it is used only by Government sector.
It is not so and it is used by many organizations where they want to place strict control over expenses
This cycles you can check after doing the set up and creation of Entry
in Funds Inquiry Screen in GL at every stage.
Hope this helps
Regards
Sivakumar
Hi Siva,
Thank you for the explaination. What is the difference between expense item and inventory item.
After obligation, that is when the PO is approved and the fund is reserved, how do we account for accruals if invoice has not been matched against the PO especially at the year end.
Does receipt of goods against the PO has any effect on our encumbrance account?
Looking forward to hearing from you
Regards
yemfola
Thank you for the explaination. What is the difference between expense item and inventory item.
After obligation, that is when the PO is approved and the fund is reserved, how do we account for accruals if invoice has not been matched against the PO especially at the year end.
Does receipt of goods against the PO has any effect on our encumbrance account?
Looking forward to hearing from you
Regards
yemfola
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