When enterprises use top-down budgeting, top management sets spending limits for each organization. To ensure that costs do not exceed the limits, Oracle General Ledger enables you to set budgetary control and define funding budgets. When absolute control is enabled, cost transactions are rejected if budgeted funds are not available.

You can further control costs by enabling encumbrance accounting. When you use encumbrance accounting, commitment transactions are controlled as well as actual transactions.

Actual transactions are accounted expenditures. Commitment transactions are planned expenditures. Commitment transactions include purchase requisitions, purchase orders, and unaccounted supplier invoices. When commitment transactions are approved, the system creates accounting entries to reserve funds in the funding budget. This reservation reduces the available funds for future transactions.

When top-down budgeting is used and encumbrance accounting is enabled, you can integrate project budgets with funding budgets. When project cost budgets are approved and baselines are created, the system generates encumbrance entries to reserve funds in the funding budget for the anticipated project costs. The reservations ensure that budgeted funds are not used before project costs are incurred. They also give management a complete picture of each organization's financial position. As future projects and future purchases are evaluated, management can review the costs of current expenditures, anticipated costs of approved commitments and approved projects, and funds available for future use.

For information on implementing budget integration, see: Implementing Budget Integration, Oracle Projects Implementation Guide.

Prerequisites for Top-Down Budget Integration

Top-down budgeting in Oracle Projects is based on budgetary control and encumbrance accounting. To use top-down integration, you must first do the following:

• Enable budgetary control in Oracle General Ledger.

  When you enable budgetary control in General Ledger, the funds check process is activated when commitment transactions are approved. The funds check process verifies the availability of funds.

• Enable encumbrance accounting in Oracle General Ledger and Oracle Payables.

  When you enable encumbrance accounting, reservations are created against funding budgets for approved commitment transactions and approved cost budgets for integrated projects.

Defining General Ledger Funding Budgets

Before you can define budget integration, you must define an organization-level funding budget or budgets in Oracle General Ledger.

In Oracle General Ledger, funding budgets contain estimated costs for a range of accounting periods. Budget organizations define the departments, cost centers, divisions, or other groups for which budget data is maintained. Accounts are assigned to each budget organization. A funding budget is associated with each account assignment.

To set an organization's spending limits, you enter funding budget balances for the accounts assigned to each budget organization.

Oracle General Ledger contains tools to create, maintain, and track budgets. For more information, see the Oracle General Ledger User's Guide.

Defining Budget Integration

To reserve funds in General Ledger funding budgets for anticipated project costs, define budget integration using the Budgetary Controls option from the Projects, Templates window. You must define budget integration before you create a baseline for the project budget and before any project transactions are entered.

When you use top-down integration, it is recommended that you define two budgets for monitoring and tracking project costs:

• One budget is for tracking the project's total cost

• The other budget is for tracking and controlling expense commitment transactions (commitment budget).

When you define integration for your project, use the budget type you plan to use for your commitment budget and select the Encumbrance balance type. When you define a commitment budget and create a baseline, the system generates encumbrance entries to create a project encumbrance against the funding budget. The project encumbrance reserves funds for the anticipated project commitment costs. When project-related expense commitment transactions are approved, the project encumbrance is reduced and new commitment encumbrances are created.

When you define integration using the Encumbrance balance type, the system automatically enables budgetary control for the project. The Project control level is automatically set at Absolute and cannot be changed. Oracle Projects uses budgetary control to ensure that the project commitment total for expense transactions never exceeds the project commitment budget and the amounts reserved in the General Ledger funding budget.

For information on Budgetary Control, see Using Budgetary Control.

Creating Project Encumbrances

To reserve funds for a project defined with top-down integration, you must define a project commitment budget using the integrated budget type. When you submit a top-down integrated budget to create a baseline version, Oracle Projects performs the following activities:

1. Validates the submitted budget version

2. Creates a baseline version

3. Validates existing approved transaction amounts (at resource, resource group, task, top task and project levels) against the project budget

4. Generates accounting events

5. Creates encumbrance journal entries in final mode for the accounting events in Oracle Subledger Accounting

6. Validates budget amounts against the General Ledger Funding Budget

7. Validates existing approved transaction amounts (at account level) against the project budget

If the baseline version is the initial baseline version for the budget, then Oracle Projects creates and validates encumbrance journal entries for this budget version. If a prior baseline version exists, then Oracle Projects creates and validates reversal encumbrance journal entries for the most recent baseline version and new encumbrance journal entries for the new baseline version.

You run the process PRC: Transfer Journal Entries to GL to transfer encumbrance journal entries from Oracle Subledger Accounting to Oracle General Ledger. When you submit the process PRC: Transfer Journal Entries to GL, you can optionally choose to have the process post the journal entries. Otherwise, you can manually post the journal entries in Oracle General Ledger.

For information on creating a project cost budget, see: Creating Project Budgets for Top-Down Budget Integration.

Liquidating Project Encumbrances

When encumbrance accounting is enabled in Oracle General Ledger, the system creates encumbrance entries against the funding budget each time a commitment transaction is approved. The encumbrance entries reserve funds for the commitment transaction line amounts. If the commitment is for an expense item and is related to a project defined with top-down integration, then the system creates additional encumbrance entries to reduce the project reservation against the funding budget.

The following table illustrates an example of the project encumbrance creation and liquidation processes.

• In line A, the funding budget is created. This budget sets the spending limit for the organization at $100.

• In line B, a project reservation of $40 is created for an integrated project commitment budget. The project reservation consumes a portion of the funding budget and reduces the available funds to $60.

• In line C, a reservation of $10 is created for a project-related commitment transaction. The project reservation is reduced to $30.

  Note that the total available funds for the organization do not change when the commitment reservation is created. Instead, the commitment reservation replaces a portion of the project reservation.