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Overview of Encumbrance Accounting

With General Ledger you can record pre-expenditures commonly known as encumbrances. The primary purpose of tracking encumbrances is to avoid overspending a budget. Encumbrances can also be used to predict cash outflow and as a general planning tool.

To use the full capabilities of encumbrance accounting, you must enable the budgetary control flag for a set of books. When you enable the budgetary control flag, the system automatically creates encumbrances from requisitions, purchase orders and other transactions originating in feeder systems such as Purchasing and Payables.

When you do not enable the budgetary control flag, you can still enter manual encumbrances via journal entry, but you cannot generate encumbrances from requisitions and purchase orders.

You have two options for using encumbrance data to monitor over-expenditure of a budget: After actuals and encumbrances have been posted, you can generate reports to show over-expenditures. You can also can use funds checking to prevent over-expenditures before they occur. See: Budgetary Control and Online Funds Checking.

The following figure shows the encumbrance accounting process with the budgetary control flag enabled.

   To use General Ledger encumbrance accounting:

Suggestion: We recommend that you let the Posting program automatically reserve funds. Since reserving funds for encumbrance entries independent of budgetary control is always successful, this method requires no user intervention.

See Also

Budgetary Control and Online Funds Checking

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