Differences Between Budgeting and Encumbrances

Finance and Operations/AX User Forum
1

Hi All ,

Could any pioneer share the difference between Budgeting and Encumbrances in AX 2012. i have gone through the functionality of both and not able to understand the difference.

I request you all share the difference with an example.

Thanks in advance.

2

Hi lally,

A budget is a list of anticipated expenses. To make your anticipated expenses equal to your anticipated income is called budgeting.

Encumbrance in other words is known as commitment accounting . The purpose of Encumbrance is to allow recording of commitments in the General ledger for future of Planned expenses before the creation or collection of the underlying documents EX purchase requisition and Purchase order.

And saying about encumbrances is the process that is involved at the time of performing Purchase Requisition i.e. when we do a PR we can check the processed amount under Budget module >> Inquiries >> Budget Control Statistics hope you must have referred this form, but as said earlier if a PR is posted we can check the posted amount under Pre-Encumbrance. Later when the PO is posted we get to check the amount under Encumbrance.

Hence when ever user performs a PR and a PO He/She can get to see the expenses made against the budgeted accounts and budget cycle.

Here budgeted accounts are those accounts which are used for Budgeting creation, at the time of setting up budget we use ledger accounts along with some dimensions(not a mandate can be used if required)

Hope this will help you in better understanding the functionality…

3

http://technet.microsoft.com/en-us/library/hh209259.aspx

Budget control is often enabled when the encumbrance process is enabled. This is not required, but it can be useful if you use both encumbrances and budget control. For example, the Purchase order year-end process form is used to close purchase order encumbrances in the fiscal year that is ending and re-encumber them in the new fiscal year. The process includes an option to carry forward budget amounts to a new fiscal year. This option cannot be used unless budget control is enabled. For more information, see Process purchase orders at year end and Set up budget control.

(FRA) Budget control must be enabled for commitment documents to be created. Commitment documents can be used only by legal entities whose primary address is in France, and only if the Public Sector configuration key is selected.

I beleive if you talk to an accountant they would consider a budget “allocated” to an account/entity etc., you could consider it a forecast. Whilst an encumbrance is a physically reserved element of the budget. It is a control to prevent the exhaustion of budget when you know you have potentially “reserved” expenditure. I believe you would want a warning when you are encroaching on teh encumrance element of the budget. Still I am not an accountant, talk to one would be my advice.

4

Hi Ashwin ,

Thanks for the reply .

Still i am not clear about the difference , I request you please explain the difference with an example and some values .

Thanks in advance.

5

Hi All ,

Please share with an example .

6

You have a budget of $10000 and an encumbrance of $2000, you need to be aware if a purchase infringes on the encumbrance, because you have segregated this for known expenses.

7

Hi Steven ,

Sorry to say that still i am not clear about the Encumbrance functionality and how to use .

As you said that budget $10000 for purchase account - 4998 and user creating the purchase order value $12000 . Already budget workflow approval is configured , so system will not allow to create the Purchase order more then budget amount .

Then what is the point of Encumbrance . ?

I have gone through the manuals and not able to understand , i request you please help me.

8

You are asking for TWO things. One encumbrance and Two how AX works with encumbrance.

  1. It is a ringfenced element of budget. If you have a budget of $10000 and an encumbrance of $2000 your budget is $8000 unless you specify the PO is for the encumbrance.

  2. You will have to work it out through the manuals. I have never used it, and as stated earlier in this post you can simply use encumbrance as a budget which means in AX there is NO difference [:D]

I was answering your question 1 as you wanted an example - you did not ask for an AX example so you did not get one, you wanted to understand the concept!