What is Commitment Checking?

Commitment checking in SunSystems is the process of comparing an approved expenditure amount from a purchase order against the available budget for the ledger accounts and analysis codes corresponding to that purchase order.

Commitment checking is only available if you are using the Purchasing module in SunSystems Order Fulfilment.

Note:  Commitment checking is not related to the commitment ledger. They are set up separately, and operate independently of each other. The budget checking amounts for committed expenditure are independent of any ledger posting to the commitment ledger, even though they can be configured to operate at the same time, with the same values.

What is Commitment Accounting?

Commitment accounting is a means of providing organizations with timely information concerning their anticipated cash flow and spending patterns. By recording all purchase orders raised as commitments against a budget, you can control not only your actual expenditure against budget, but also any expenditure that you have committed to, which becomes actual expenditure at some point in the future.

This is a much tighter method of controlling expenditure because it reduces the budget available for an account when a purchase order is raised against the account, rather than waiting until the actual expenditure is incurred when an invoice is received.

Commitment accounting is in two parts:

  • Over commitment checking specific checking that is performed in purchase orders only and may be enabled or disabled. When entering a purchase order the system checks whether there is available budget.
  • Recording committed expenditure against budget when the purchase order is approved, a corresponding portion of the budget is reserved. This amount may then be used as part of expenditure checking in ledger entry and in purchase invoice transactions. It may also be used in commitment checking.

Recording Committed Expenditure against Budget

A SunSystems budget consists of three parts:

  • Budget amount the permitted budget for an budget check definition (account/analysis combination).
  • Actual expenditure the actual expenditure against the budget. This is either from direct ledger transactions or from purchase invoice transactions in SunSystems Order Fulfilment.
  • Committed expenditure the approved spend from purchase orders, reserved from the available budget.

When entering a purchase order in Order Fulfilment and budget checking is installed, the system updates the committed expenditure of the budget. The account/analysis combination to be updated is the account and analysis entered on the purchase order line.

Note:  Budget checking must be installed. The budget check definition must exist for the account/analysis combination, with the Include Commitment option checked.

A purchase order line may contain many values (for example, quantity, unit price, net, taxation, gross) and these are held as value labels. The exact value label to be used to update the expenditure amount must be specified in Purchase Type Definitions Values Setup form using the flag Commitment Budget Value. All budget values must be held in the base currency.

A purchase order can have up to two stages, order entry and order confirmation. The stage at which the order updates the budget must be specified on the Purchase Business Setup (PBS) using the Commitment Stage flag.

Where is the Committed Expenditure Used?

When entering a ledger transaction, a purchase invoice or a purchase order, the system can perform a budget check to see what available funds remain for the budget. If Commitment Accounting is being used, then the available budget is calculated as follows:

  • If the transaction value exceeds the available budget then the transaction fails the budget check and is held.

    If you want the committed expenditure to be ignored when entering financial ledger transactions, uncheck the Include Commitment checkbox on the Budget Check Setup (BCS) record.

Over Commitment Checking in Order Fulfilment Purchase Orders

Commitment Checking is additional functionality used when entering a purchase order. This functionality is turned on in Purchase Business Setup (PBS) using the Over Commitment Checking checkbox. When entering a purchase order the system checks to see if there is available budget using the formula above. If there is available budget, the order is allowed to continue. If there is no available budget the order is held and prevented from further processing. A warning message is displayed.

When performing the commitment check, overrides can be used. In Purchase Business Setup (PBS), an exact value tolerance or a percentage tolerance can be set. If required, these may be overridden by tolerances on the Operator Group, defined in the Security if required. If there is no available budget, the system applies the tolerances. If inside the tolerance, you are warned but allowed to continue. If outside the tolerance, you are warned and the order is held.

If you are using commitment checking, when you match a purchase invoice to a purchase order, the committed expenditure is reduced and the actual expenditure is increased by the same amount for the account and analysis code combination. Thus, the committed expenditure is converted to actual expenditure.