Since budgeting aim is planning, control and analysis cash flows, in this post I’d like to go through one of the stage of financial planning: creation, allocation and usage of financial resources of the company on the example of cost budget.
In AX budgeting consists of 4 main components:
- Basic budgeting
- Budgeting register entries
- Budget planning
- Budget control
In this example, we will be creating Cost budget manually (fixed costs) through Basic Budgeting and Budget Register Entries. And then we will compare actual and forecasted (budgeting) results in order to assess the effectiveness of operations.
Basic Budgeting requires Basic Budgeting configuration. This configuration includes the following:
Configure Budgeting Parameters
Define currency exchange rate
Identify Budget models. Budget model it’s type of the company’s budget (budget of expenses, sales budget or budget of payments). Company might have several budget models and they can from a complex tree structure. Each model might have submodels and those submodels might have their own submodels and so on. The number of level is unlimited.
Setup Budget cycles
Setup Budget code for each Budget Type. Identify Default Budget code.
Identify Financial dimensions that will be used for Budgeting. Further we will be transferring budget amounts either to or from them. This is essentially the combinations financial dimensions who could hold budget amounts.
Identify Main accounts that will be used for Budgeting. Further we will be transferring budget amounts either to or from them.
Setup budget allocation terms. This is an optional setup. It’s used to define the financial dimension values and the percentage that will be used to generate allocations in budget account entries for budget register entries. In general, budget allocation terms is used to split the budget into small pieces. For instance, budget for the period you could split into smaller periods or distribute general administrative expenses by departments, cost centers and other dimensions in any combination.
Configure Budget workflow (in case if Budget register entries requires approval). Assign Budget workflow to Budget code. This is an optional setup.
Now let’s jump into AX and look at the settings.
Go to Budgeting > Setup > Basic budgeting > Budgeting Parameters
Go to Budgeting > Setup > Basic Budgeting > Dimensions for budgeting
Go to Budgeting > Setup > Basic Budgeting > Budget Models
Go to Budgeting > Setup > Basic Budgeting > Budget Codes
Go to Budgeting > Setup > Budget Planning > Budget cycles
Go to Budgeting > Setup > Basic Budgeting > Budget allocation terms
Go to Budgeting > Setup > Basic Budgeting > Budget transfer rules
If you see the error message: No budget transfers are allowed outside of these rule lines unless you use workflow to approve the transfer. If no criteria are specified, then the rule applies to all dimension values, select Use rules for budget transfers in the Budget parameters form.
Once we did all the settings we can enter budget data into Budget Register Entries form.
Navigate to Budgeting > Budget register entries.
Click New button
Specify Transaction date: the date when Budget will be posted
Select Budget Model created beforehand
Select Budget Cycle created beforehand
As far as we are creating budget for the Administrative costs let’s create the following budget items:
– costs of operating and maintaining buildings (electricity/gas/water bills),
– grounds and equipment
– general and departmental administrative salaries and expenses
– library costs.
In the Budget account entries section click Add line button
Select Account structure within your legal entity
Select Account in the Dimension values field
Select dimension in the Dimension values field: for which business unit, department, cost center this budget is.
Specify Budget amount
Select Amount type
You can enter all budget items manually or you can use one of the allocation ways.
From here we have several options how we can allocate budget amount:
- Recurring entry. Amount is divided equally through each period. For instance, rent, leases, insurance, interest lost
- Allocate periods. Breaking out the budget amounts by period keys, predefined beforehand. Moreover, it allocates based on the percentages that you’ve set up in period key.
- Allocate dimension. Amount allocated by different percentage to different financial dimensions.
Let’s look at each allocation method in details.
Highlight budget line that you’d like to allocate and click Enter recurrence.
Specify the Interval and Interval type: Is it Days, Months, Years
Specify the Expiration date: End date of the allocation
Before you can use this method of allocation you should complete the pre-requisites.
Go to General ledger > Ledger setup > Period allocation categories
Highlight necessary allocation key and click Lines
Based on the Allocation percentage we are going to allocate our budget amount
Switch back to budget register entries
Highlight the budget item and click Allocate across periods
Select Period allocation key and click Allocate
Allocate to dimensions.
Highlight the budget item and click Allocate to dimensions
Select Budget allocation terms predefined earlier and click Allocate
Once you’ve filled in the budget, you need to finalize this budget by clicking on the Update budget balances on the top. And now, what we have is we have budgets for a specific main account and for a specific department. When you use the dimension value combinations on transactions and these dimension value combinations exist in your budget, AX will let you know if you are exceeding your budget.
To continue reading these series of posts, please follow the link O365 Budgeting Cookbook (Part 2 of 3). Budget control