Understanding Commitment Processing
A commitment is the recognition of a future obligation. In Public Sector and Government, a commitment is referred to as an encumbrance. A commitment or encumbrance is created when an order for goods or services is charged to a general ledger account. You create commitment purchase orders using nonstock purchase order entry or services/expenditures purchase order entry. Each time you enter an order detail line, you can have the system track the amount that you are obligated to pay and apply it to a job or project.
For example, you might be working on a pavement resurfacing project. Each time that you enter an order for goods or services to complete the project, you can have the system create a commitment or encumbrance for the order amount.
In addition, you can roll over a commitment or encumbrance to the next fiscal year.
For example, local governments and municipalities normally have the authority to expend funds for one fiscal year. As a result, purchase orders and subcontracts with open balances are often canceled at the end of the fiscal year. To prevent these purchase orders and subcontracts from being canceled and to retain the recognition of these open balances, you must roll them forward to the new fiscal year.
A commitment is created when goods or services that are chargeable to a budgeted or appropriated expense are ordered or contracted. The commitment is relieved when the goods or services are received, which creates a liability of either a Received Not Vouchered or an Accounts Payable Ledger record.
You can monitor individual commitments for a job or project to verify the types of purchases that are being made. You can review the total commitment amount for a job or project to verify that it does not exceed the budget.
A functional server program called Update Commitment Ledger (X00COM) is used to create and relieve commitments and encumbrances. The system uses the Update Commitment Ledger (X00COM) to create appropriate entries for JD Edwards EnterpriseOne Procurement system commitments.