Check if it is applicable to your entity

If your organization is using the budget module and creates purchase orders by validating available budget funds, then this article will help you to decide to use the carry-forward feature.

Many companies do not use the budgeting feature and for them, the PO carry-forward feature is not applicable. However, I recommend no matter what type or size, every organization should use budgeting.

There are different approaches to dealing with POs during year-end closing

1. Some organization cancels all the purchase orders and purchase requisitions
2. Use accrual accounting technique

However, data tracking is questionable by auditors and requires a lot of effort. So instead use carry-forward purchase orders, we will analyze the good, bad, ugly, and new features of this option.

Setup

Please review my post here for the basic PO carry-forward setup.

PO-carry forward feature: Good part

In a few clicks transfer purchase orders using the year-end PO carry forward process.

1. The distribution of PO will be of the original type, let's say 1-AUG-2021
2. The current PO year budget entries are reversed in the closing period, 31-DEC-2021
3. The same PO budget entries are added as new entries in the budget registry in the opening period, 1-JAN-2022.

Budget funds available: Bad part

Budget funds available are the control based on which organization can create PR (if configured), PO, PO invoice, and direct invoices.

Upon completion of the carry-forward process successfully, is careful to have a look at what is the formula set for budget funds available, ask the following questions to your organization, and seek the policy or procedure.

In the new year the budget funds available

1. Should include carry-forward values?
2. Exclude carry-forward values?

Both options have consequences.

If you opted for include-carry forward, users can see that they have more budget available in the current year allotment however, in reality, it includes both the allotted budget plus last year's budget carry forwarded.

If you opted for exclude-carry forward, which is usually the common and best practice in my experience then users can see the budget available only allotted but without carrying forward values.

The bad part is Management reporter cannot distinguish between actual expenses between carry-forward vs current year, the only way is to use forms like “Budget control statistics” and “Budget control statistics by dimension” (available in D365FO only and not in AX).

Ugly part

If the PO is edited or finalized then it will increase the budget, and unknowingly users can start requesting PR or POs under the assumption that funds are available, which is not true unless the organization supports this policy.

Example: last year's PO carry forward: $500, the PO is edited or finalized then the current year's budget is increased by $500.

As we cannot avoid this scenario the only option is to manually adjust the budget registry entries, still, it is better than the whole manual process.

New feature

In AX 2012, the ugly part was only avoidable using a workaround process however, in Dynamics 365 Finance and Operations the new feature is added “Maintain carry-forward status for documents“, which will retain the status of PO as carry-forward only in the events like editing so that current year budget is not increased and give the wrong assumption to users and avoids extra work by budgeting team.

Update: See https://docs.microsoft.com/en-us/dynamics365/finance/public-sector/determine-carry-forward-budget new solution.