Question

Your customer has enabled budgetary and encumbrance controls at the requisition level. You have a purchase order for $1,000 USD, which is fully reserved and has one invoice for $600 USD. When the purchase order is matched through the final match process, the purchase order is closed for further invoicing. What happens to the remaining $400 USD?

Answer 1

When a purchase order is closed after final invoicing, remaining funds, in this case, the remaining $400 USD, are typically released back into the budget or encumbrance balance, subject to the organization's financial system settings and policies.

Step-by-step explanation:

When a purchase order is closed for further invoicing after a final match process, the status indicates no additional invoices can be processed against it. In the scenario described, an invoice for $600 USD has been matched, but the order was originally for $1,000 USD. The remaining $400 USD that has not been invoiced would typically be released back into the budget or encumbrance balance, assuming the organization's financial system is set to revert unspent funds.

Budgetary controls and encumbrance accounting principles dictate that any reservation of funds not used for actual expenses should be made available again for other uses. Therefore, the remaining budget of $400 would be unencumbered, which means the funds are freed from being reserved for that particular purchase order and can be re-allocated or used for other financial commitments.

The exact handling of the unencumbered funds may vary based on organizational policy and the financial management system in use. Sometimes manual intervention is required while other systems automatically update budget and encumbrance ledgers to reflect the released funds.