If you use Oracle General Ledger's Budgetary Control feature, you can check funds before you save a transaction and you can have the Invoice Validation process automatically create encumbrances to reserve funds for your transactions. For example, when you enter an invoice, you can use the Funds Check program to check if you have available budgeted funds to pay for an invoice or invoice distribution.

If you select absolute budgetary control in General Ledger, then Invoice Validation places an Insufficient Funds hold on any invoice that fails funds checking. If you use advisory budgetary control, Payables allows the invoice to pass Invoice Validation, even if it fails funds checking. During Invoice Validation, Payables creates encumbrances to reserve funds against the budgets you define in Oracle General Ledger. When you create the accounting entries for the transactions, it relieves the encumbrances.

As the final step of budgetary control in Payables, if you enable Use PO Encumbrance in the Financials Options window, then encumbrance entries are automatically created to reserve funds for invoice expenditures against the budgets you define in Oracle General Ledger.

Funds checking and budgetary control include nonrecoverable tax as part of the item cost to fully recognize the commitment because nonrecoverable tax becomes part of the acquisition cost of the item.