Resolution

GAAP

Open POs at year-end create a carry-forward budget amount for each expense account, which effectively is a budget adjustment in the new year to cover the expense that will occur in the new year. The original PO expense accounts stay with the PO. The account remains encumbered until expenses are received in the new year, at which point transactions are charged as an expense to that account. The actual year-end processing steps are:

The open purchase order amounts are added to the account’s “Carry Forward Budget”. This increases the account’s “Revised” budget for the new year, but as the two values are stored in Account Master, it is clear what amounts are current year appropriations versus prior year (Carry Forward).
Payments made against these purchase orders are processed as current year expenses.

Budgetary

At year-end, all open POs (except “N”ext Year POs) are liquidated and expended to the accounts listed in their detail. They are re-encumbered in the new year with their expense accounts replaced by the "Prior Year Encumbrance" (liability) account. Since this is a balance sheet account, the encumbering and subsequent expenditure (liquidating the PO and creating an invoice) does not affect the new year’s budget. The Budgetary method works as follows:

At year-end: for each expense account on all open purchase orders, the encumbrance is automatically liquidated and an expenditure is recorded so that the expense appears with the year it was budgeted for.
The purchase orders remain open, but the expense accounts on the POs are all converted to a user-specified Prior Year Encumbrance liability account: Fund Balance – Reserve for Encumbrances. When the purchase order is received in the new year, payment is made against the Prior Year Encumbrance liability account. There would be one Prior Year Encumbrance account per fund.

Combined

This option provides features from both the GAAP and Budgetary options described above. Its methodology is the same as GAAP during Year End Processing: when prior year POs are liquidated in the new year, the expense posting also updates a special “Current Year from Prior Year” expended field on the G/L ACCOUNT F/M to allow budgetary reporting. Budgetary reporting of the current-year backs out all prior-year and carry-forward activity, providing a clean current-year analysis. The details at year-end are:

The GAAP method is followed for open purchase orders at year-end. The purchase orders remain open in the new year and the dollar value of the open purchase order is entered as a Carry Forward Budget.
In addition, two new fields (used only by the Combined approach) are utilized: Current Year - Prior Year Encumbrance and Expenditures. The encumbered amount at year end is copies into this field. Thus, the account will show an actual encumbrance and a CY-PY encumbrance, both carried from the prior year. Payments made against these purchase orders in the new year will be posted both as an actual expense and as a Current Year - Prior Year Expense (another field on the Account Master used by the Combined method in the CWFD window).

Transfer

All encumbrances from the prior year are transferred to other Prior Year expense accounts normally located within the Org of the original expense accounts. This is accomplished through the use of the “Reference Org/object” found on the Account Master.

Each GL account may be established with a Reference account. (Example: the reference account may be “Prior Year Expense” and can reside in the same Org or a separate Org.) The Reference account is typically entered at the same time the original account is created, although can be added later. The Account Master stores both accounts.
The Year-End Open Purchase Order processing routine transfers the encumbrance from the original expense account to the Reference Account. The Purchase Order General Ledger Detail accounts is also changed to the Reference Account. The purpose is to show these amounts in a separate section of the financial statements.
Payments made against the purchase order would be posted as an expense in the current year but to an account for prior year expenses. This account could be excluded as desired from a current year report.

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