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Differences Between Budgeting and Encumbrances

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

The concept of budgeting includes 2 processes. PROCESS 1 involves defining the budget amounts for a given period; getting them approved and stored in budget registers. PROCESS 2 is the control aspect - this is where the system would check if budgets are available before you can issue a PO or before you can make a travel request.

If you setup your system with the objective of financial reporting only, then you can stop at PROCESS 1. You would implement PROCESS 2 only if you want to be more proactive on budgetary control.

You implement encumbrances if you want to be at an advanced level of budgetary control. For example, the below stages tries to depict this: -

I create a PO in the system and Budgetary control check is performed before I can confirm and issue the PO. In case budget is available I can reserve the funds and the system would then create the corresponding GL entry as well. During the purchase lifecycle, then the system would release the budget that I reserved. This whole concept of reservation and release etc, is covered under encumbrances.

In summary, with the introduction of Budgetary control and Encumbrances / commitment accounting in 2012, AX has moved to be a more proactive tool in terms of control rather than passive - like in older versions (where you just enter your budgets / then actuals; then print reports to see how much of the budget you have used, etc.)

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