What are the Encumbrance Methods

What is the Budget Actuals Encumbrance Method

Budget Actuals supports government entities that budget expenses on a basis other than GAAP and do not re-appropriate year-end encumbrances in the succeeding year. This approach does not treat year-end encumbrances as "rolled over" to the new year or accrued as current year expenses nor does the new year’s budget reflect those prior year-end encumbrances. Encumbrances remain "linked" to the budget from which they originated, and the actuals that are eventually created from them are available for comparative purposes to the originating budget. The General Ledger GAAP actuals are not affected by this treatment.

Two new rollover amounts are updated on next year’s budget detail record when the budget journal is posted. The Rollover Amount represents all open encumbrances at year-end and is used for budget edit calculations in the next year. The Rollover Balance represents only the open encumbrances that were created in the current year. This allows for access to final year-end encumbrances for audit and reporting purposes at any time after the encumbrance rollover process (GL197 and FB190).

Two new Budget Actual amounts are updated on the budget detail record for the year and period that the originating encumbrance was created. Budget Actual Amount represents actuals realized in the same year as the corresponding encumbrances were created. Future Budget Actuals represents actuals realized in years subsequent to the encumbrance creation. This allows access to final year-end Budget Actual amounts for audit and reporting purposes at any time. The Budget Actual and Future Budget Actual amounts are updated when expense transactions are interfaced to the General Ledger.

Budget Actual Transactions are created when the Budget Actual and Future Budget Actual amounts are updated on the Budget record. This occurs upon interfacing subsystem transactions to the General Ledger or from releasing transactions within the General Ledger. Budget Actual transactions provide detail to support the Budget Actual amounts. Drills from the Budget account and from the General Ledger transaction to the Budget Actual transactions are available. If necessary, you can rebuild Budget Actual and Future Budget Actual amounts from the Budget Actual Transactions with FB325. The rebuild will replace any existing Budget Actual and Future Budget Actual amounts.

What Happens When I Accrue Encumbrances and Commitments?

When you run Period Year End GL Commitment Accrual (GL197), the system:

  • Creates auto-reversing GL transactions to record an accrual for the outstanding encumbrances and commitments. The offsetting account used to balance the entries is the commitment accrual account from System Accounts (GL00.7).

    — or —

    Creates a budget journal entry to increase next year's commitment budget for the outstanding commitments/encumbrances updated instead of the GL journal entry accrual.

  • Moves the current period encumbrances and commitments into the next period which offsets the reversing entries created during Period Year End GL Commitment Accrual (GL197). This prevents next periods available balance from being inflated.

  • Creates reversing encumbrances and commitments in the next period to keep the available budget balance from being reduced in the new period until the reversing entries are created during Period Closing (GL199).

The reversing encumbrances and commitments appear with the original encumbrances and commitments on Commitment Analysis (GL94.1) and Commitment Analysis Report (GL298).

When you run Period Closing (GL199), the system:

  • Creates an entry to reverse the accrual for outstanding encumbrances and commitments

  • Deletes the system generated reversing encumbrances and commitments created by Period Year End GL Commitment Accrual (GL197)

After you run GL197 and GL199 the encumbrances and commitments created in prior periods will be offset by the accrual entries posted for the period.

The tables below depict how encumbrances and commitments are accrued.

An entry is permanently removed from the Commitments file when the transaction is complete. For example, an encumbrance is removed for a purchase order when the invoice is distributed on Invoice Distribution (AP175) and for a journal entry on Journal Posting (GL190). When a transaction is complete, the net effect on the budget for the current period is zero because the actual transaction is offset by the previous accrual entry. The budget amount that is affected is the period budget that corresponds to the date of the original transaction.