If you have not set the Over Receipt tolerance with consideration or proper validation in the business where Encumbrance Accounting is enabled you will land with very critical Accrual issue.
What happens if Over Receipt tolerance in the Receiving Options are not set with 0 % Tolerance and the Action=Reject ?
Even though you have three ways matching enabled for your Invoice Matching option this will restrict only for over payment even if you have over received by mistake. But if encumbrance accounting is used in your system here is the complexity.
What will these over received quantities do?
If the items are Inventory Items this will inflate your Inventory Valuation Account and Accrual Account or if the items are expense items this will inflate your Accrual Account.
E.g. Your PO Ordered Quantity: 100 Unit Price: 10 Total PO Value: 10 * 100 = 1000 (Month Of January)
If you have received in January - 150 Quantity instead of 100 Ordered Quantity your Accrual value will be 10*150 = 1500
When you run the Receipt Accrual at the January Period end your Accrual value will be 1500 where as it should be only 1000 and this will open up your next month accrual value with 1500 which is not supposed to be there. Whereas the extra 500 will be an inflated value in your budget and will pass on and will end up with unstable budgeting.
If you will not diagnose this over receipt issue users may use the budget for which they are not eligible and if this continues this will affect the company’s balance sheet severely in couple of years.
Hence make sure if encumbrance accounting is enabled in an Organization, Receiving control should be with zero tolerance or plan accordingly.
Thanks & Regards,
S.Grace Paul Regan
