3 Replies Latest reply on Feb 15, 2016 6:55 PM by Vanha.L-Oracle

    Encumbrance a/c for Inventory

    User579817-OC

      Hello,

       

      Navigation

      INV-  setup-org-parameters-other accounts

       

       

       

      There is an encumbrance a/c that we need to define.

       

      1. When is this account used please?

      2. What are the journal entries generated?

      3. Can the same encumbrace a/c defined at GL in accounting setup manager be used here?

      4. Can it be left blanked?? Even if the client wants to use encumbrance accounting?

       

      thanks

        • 1. Re: Encumbrance a/c for Inventory
          Vanha.L-Oracle

          Hi,

           

          1. When is this account used please?

          --> When encumbrance is enabled for the operating unit, the account generator workflow uses this setup to default the Budget Account for Inventory destination purchase document's distribution.

          --> Refer to the Purchasing User's Guide or https://docs.oracle.com/cd/E18727_01/doc.121/e13410/T446883T443965.htm

           

          2. What are the journal entries generated?

          --> Journal entries will be created based on the encumbrance activities, whether it's a reservation (DR) or encumbrance relief (CR)

           

          3. Can the same encumbrace a/c defined at GL in accounting setup manager be used here?

          --> Any account that is enabled, allow posting, allow Budgeting can be used

           

          4. Can it be left blanked?? Even if the client wants to use encumbrance accounting?

          --> It is not a required setup. Refer to the document in (1) for order of defaulting of Budget account in an encumbrance enabled environment.

           

          Regards,

          Vanha

          1 person found this helpful
          • 2. Re: Encumbrance a/c for Inventory
            User579817-OC

            1.Requisition

            DR PO Distribution

            CR Encumbrance Reserve

             

            2.PO

            Reserve Requisition encumbrance entries

             

            DR PO Distribution

            CR Encumbrance Reserve

             

            3. Receipt

             

            Reverse PO encumbrance entries

             

            DR Receiving Inspection

            CR Inv AP accrual a/c

             

            4. Delivery

             

            DR Material a/c

            CR Receiving inspection a/c

             

            5. Invoice

             

            DR Inv AP accrual a/c

            CR liability a/c

             

            The above are the journal entries generated from raising a requisition to invoice.

             

            Can you please indicate to me at what point the encumbrance a/c is going to be used? [INV-ORG-PARAMETERS-OTHERS ACCOUNTS]

            • 3. Re: Encumbrance a/c for Inventory
              Vanha.L-Oracle

              Hi,

               

              It is assumed that Create Accounting is run to process accounting for the appropriate application.

              For commitment and obligation, Create Accounting needs to be run for Requisition and Purchase Orders from Purchasing.

              For Inventory encumbrance reversal, Create Accounting needs to be run for Cost Management for Inventory from Cost Management - XLA

               

              Assuming all the above, these journals should be created for Inventory in an encumbrance environment:

               

              Encumbrance accounting journal entries:

               

              1) Reserve Requisition:

              - Budget Account DR -- commitment created

              - Reserve for Encumbrance CR

               

              2) Autocreate Requisition into PO, and reserve PO. This is sometimes called commitment becomes obligation:

              - Budget Account CR -- commitment reversed

              - RFE DR

               

              - Budget Account DR - obligation created

              - RFE CR

               

              3) Receive into Inspection: no encumbrance effect

               

              4) Delivery into Inventory: transaction processed and costed (prerequisite: Inventory organization must enable Reverse Encumbrance.) Run Create Accounting for Cost Management and transfer Journal to GL. Post Journal in GL:

              - Budget Account CR -- This is the encumbrance reversal

              - RFE DR

               

              5) Invoice: no encumbrance effect

               

               

              Accrual accounting journal entries:

               

              1) Reserve requisition, reserve PO: no accrual effect

               

              2) Receive into Inspection:

              - Receiving Account DR

              - Inventor A/P Accrual CR

               

              3) Deliver into Inventory

              - Material Account DR

              - Receiving Account CR

               

              4) Invoice:

              - Inventory A/P Accrual DR

              - Liablity Account: CR

               

              Regards,
              Vanha