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For matched invoices, Oracle Payables creates encumbrance reversals in the amount of the original purchase order encumbrances. These reversals are created using the purchase order encumbrance type. Oracle Payables creates encumbrance reversals in the amount of the invoice variance using the invoice order encumbrance type.

For direct invoices, Oracle Payables creates encumbrance reversals in the amount of the invoice using the invoice encumbrance type.

Example

The purchase order encumbrance type is called Commitment and the invoice encumbrance type is called Post-Commitment. You enter a purchase order for 5 items at $10 each. When you receive an invoice for these items, the price is $10.50 each. You allow the variance under the matching tolerances. During Approval, Oracle Payables creates an encumbrance journal entry for $2.50 and assigns it the encumbrance type of Post-Commitment. When you post the invoice, Oracle Payables creates a reversing encumbrance entry for $50 (encumbrance type Commitment) and a reversing encumbrance entry of $2.50 (encumbrance type Post-Commitment).

Accrual Basis Accounting

If you are using accrual basis accounting as a Payables option, Oracle Payables relieves encumbrances when you initiate posting of invoices. Oracle Payables prorates the encumbrance reversal based on the amount of the invoice.

Example

You are using accrual basis accounting in Oracle Payables. You create a purchase order for one item for $500. You charge the purchase order to 1089-6100-1000-350-2120. When you approve the purchase order, Oracle Purchasing creates a purchase order encumbrance for $500. You receive an invoice for the item for $510. Approval creates an additional encumbrance for $10 charged to 1089-6100-1000-350-2120. When you post the invoice, Oracle Payables creates a reversing encumbrance entry for $510 to 1089-6100-1000-350-2120, and a journal entry of invoice expenses to account 1089-6100-1000-350-2120 for $510.

Cash Basis Accounting

If you are using cash basis accounting as a Payables option, Oracle Payables relieves encumbrances when you initiate posting of invoice payments. Oracle Payables prorates the encumbrance reversal based on the amount of the invoice payment.

Attention: When using cash basis accounting, you will not normally run the Receipt Accrual - Period End process. However, you must use the Define Purchasing Options window and set the Accrue Expense Items field to Period End.

Example

You are using cash basis accounting in Oracle Payables, and you enter an unmatched invoice for $450, charged to 1089-6100-2000-100-2120. When you approve the invoice, Oracle Payables creates an encumbrance journal entry in the amount of $450 for the account 1089-6100-2000-100-2120. You pay $200 of the invoice through a manual check. When you post the invoice payment, Oracle Payables creates an encumbrance reversal for $200 to account 1089-6100-2000-100-2120, an entry recording expenses in 1089-6100-200-100-7120, and an equal amount to cash.

Combined Basis Accounting

If you use combined basis accounting, Oracle Payables posts encumbrance entries to the primary set of books only.

Before you post, you can review these encumbrance journal entries, and journal entries of actual expenditures in General Ledger.

See Also

Final Matching Purchase Orders

Approval