Selecting Encumbrances for Liquidation

What to Consider when Selecting Purchase Orders for an Encumbrance Liquidation Journal
How Liquidating Encumbrances Affects Purchase Orders

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What to Consider when Selecting Purchase Orders for an Encumbrance Liquidation Journal

Important: Select purchase orders for which no further activity is anticipated. Choose carefully; once an encumbrance is fully liquidated, further activity is prohibited. As encumbrances are liquidated, the associated purchase order will be affected as shown in the chart below. (The purchase order item, or the entire purchase order will be closed depending on whether the purchase order was created using document or commodity level accounting).

After running the Open Encumbrance Report, there are some important factors to consider before closing a purchase order encumbrance.

Purchase orders should not be selected for encumbrance liquidation if any of the following conditions exist:

A credit memo is anticipated. Review any returned goods activity which could indicate future receipt of a credit memo.
Shipping charges are anticipated. Review the FOB terms of the purchase order, it may indicate future receipt of a shipping charge. Check FOIDOCH; freight charges may have been invoiced.
The PO is an active Blanket purchase order.
The PO is an active Not-to-Exceed purchase order.

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How Liquidating Encumbrances Affects Purchase Orders

Important: Once a purchase order is closed, further activity is prohibited.

Liquidation’s Effects on POs (Commodity Level Accounting)

Commodity Level Accounting	Effect on Purchase Order	Effect on further activity
Liquidating all Accounting Sequences	Entire PO (all Items) Closed	No further activity allowed
Liquidating some but not all Accounting Sequences for one item (This process is NOT RECOMMENDED)	PO Item will not be closed	All items will allow activity BUT, PO’s / INV’s will be OUT OF BALANCE. Change order must correct.
Liquidating all Accounting Sequences for a commodity item	Only the item for which encumbrance is being liquidated will be closed. All other items remain open	No further activity on closed item. Other items will allow activity

Liquidation’s Effects on POs (Document Level Accounting)

Document Level Accounting	Effect on Purchase Order	Effect on further activity
Liquidating all Accounting Sequences	Entire PO (all Items) Closed	No further activity allowed
Liquidating some but not all Accounting Sequences (This process is NOT RECOMMENDED)	PO Items will not be closed	All items will allow activity, but accounting sequence which was liquidated will no longer show on change orders or invoices. AND, PO’s / INV’s will be OUT OF BALANCE. Change order must correct.