You can elect to do funds checking with encumbrance accounting. You can post encumbrances to individual line item accounts and to summary accounts. However, used alone, encumbrance accounting does not automatically verify that there is sufficient funding in these accounts.
Funds checking used with encumbrance accounting immediately updates the accounts and verifies that funds are available.
Suggestion: To use funds checking, enable budgetary control when you create a ledger. If you enable budgetary control later, you might overspend budgets, since the system does not retroactively create encumbrances for transactions approved before you enabled the budgetary control flag.
Public sector entities wanting to use fund checking must designate the budget as "funding" and must enter budget data using budget journals. The system subtracts encumbrances from the budgeted amount to determine funds available. You can define different encumbrance types for requisitions and purchase orders to represent different phases of the procurement process. Most organizations use the combination of funding budgets, encumbrance accounting, and funds checking to control their day to day operations.
Public sector entities may elect to use funds checking with budgetary accounts rather than with encumbrance accounting. Agencies using budgetary accounting, record appropriations and encumbrances as actual entries, not as budget entries. When you check funds in budgetary accounts, the system calculates the funds available in one of two ways:
DR-CR for budgetary DR accounts. Budgetary DR accounts are those for which the normal balance is a debit.
CR-DR for budgetary CR accounts. Budgetary CR accounts are those for which the normal balance is a credit.
When using budgetary accounts, most users do not create encumbrances, because the budgetary accounts themselves record the movement of funds from budget accounts that are spendable, to anticipated expenditure accounts, to liquidated appropriation accounts. We recommend you turn off encumbrances by setting the OGF Create Encumbrance Entries for Budgetary Accounts profile option to No.
For more information refer to the Oracle U.S. Federal Financials Implementation Guide.