SAP B1 blog

Prevent budget overruns in SAP Business One

In SAP Business One, a budget is based on the data entered, which determines the maximum amount that can be allocated to a specific G/L account. At the same time, you can block the creation of transactions for G/L accounts that exceed a budget limit, for example.
During operation, the application then checks the target side of the G/L account registered transactions for which there is a budget. If the budget is exceeded, SAP B1 warns or blocks the action, depending on the setting.

Budget setup in SAP B1

To set up the budget function, you must:

• Initialise the budget function in the company database.
• Define the G/L accounts that will be relevant for budget control.
• Define budget distribution methods that automatically allocate the budget amount to the months of the year.
• Define the budget amounts for the relevant G/L accounts.

Step 1 - Initialising the budget function

First you have to initialise the budget function. Go to Administration -> System initialisation -> General settings and select the "Budget initialisation" checkbox on the Budget tab.

You then define what should happen if documents deviate from the budget. Whether SAP Business One blocks the creation of transactions that exceed the budget. Or whether the software issues a warning when the budget is exceeded. The user can confirm and add or cancel the transaction.

In the authorisation window, under the Finance module, there is another budget clause. In this you define authorisations for users to confirm budget variances.

If you select the "Without warning" option, the user can add transactions that exceed the budget without any restriction or warning.

For purchase requisitions, purchase orders and goods receipts PO, the check against the budget is performed during the issuance of the document, including all open documents and the current document.

For the accounting option, a check is carried out during the issue of a vendor invoice or other accounting transaction that relates to a G/L account relevant to the budget.

You can manage the budget annually or monthly. We will discuss these two options in the following sections.

Step 2 - Definition of accounts relevant to the budget

Once you have initialised the budget function and opened the "General settings" you have the option of labelling all profit and loss accounts as budget accounts.

By selecting Yes, the checkbox "Budget relevant" selected in all your profit and loss G/L accounts.

You will find this checkbox under Financial accounting ? Chart of accounts ? Account details button.

Note that you can manually mark non-profit and loss G/L accounts as relevant to the budget by selecting the "Relevant to budget" checkbox for each G/L account.

Annual versus monthly budget

You can manage the budget on an annual or monthly basis. With the annual option, SAP Business One measures the deviation from the budget forecast against the current balance of the G/L account for the current financial year. So if you select the annual budget option and a forecast amount for a cost account, the budget variance check would always be carried out against this amount.

With the monthly option, the system distributes the budget forecast amount for each G/L account over the months of the year. In each month, the transactions that debit this G/L account are compared with the distributed monthly amount.

Let's assume we are in the month of October, the current balance of an account budgeted at EUR 6,000.00 is EUR 5,000, and a purchase totalling EUR 600 is issued to this account.

With the annual option, the budget review would authorise this expenditure because EUR 5,600.00 is still within the annual forecast amount of EUR 6,000.00.

According to the monthly budget, the limit for expenses in each month is EUR 500.00, so 600 is already a budget variance and SAP B1 would therefore block the purchase.

Note that if the warning option is selected in the general settings for the budget, the system will send a warning if the budget is exceeded. The user can confirm and add the transaction if an authorisation to confirm the budget variance has been defined for this user.

Step 3 - Definition of budget allocation methods

In the example we have just seen, SAP Business One used the equal budget distribution method to automatically divide the budget amount over the months of the year.

SAP Business One automatically defines the following 3 common budget distribution methods:

The even method.

• uniform method

  distributes the budget amount evenly over the months

• Ascending order

  distributes the budget amount in ascending order. Use these when you increase your budget expenditure over the months of the year. For example, in January you only use a small part of your budget amount, in February you increase your expenditure and so on.

• Descending order

  distributes the budget amount in descending order. Use this when you reduce your budget expenditure over the months of the year. For example, you use most of your budget amount in January, slightly less in February and so on.

Note that you can later change the distribution of the budget amounts manually for each account.

You can set a specific distribution method as the default method by clicking the "Set as standard" option. Please also note that budget distribution methods are not relevant if you are working with an annual budget.

Budget scenarios

Budget scenarios are mainly used to display budget reports. With a scenario, you create an analysis of a specific situation for the company's budget and receive information on how the budget will develop in the future. balance according to the selected scenario. For example: an optimistic scenario versus a pessimistic scenario.

When you set up a new company, the application offers a default scenario called Main Budget. You cannot change this scenario. You should later enter budget amounts for each scenario that the company uses. Please note that during operation, the deviation from the budget is only checked against the main budget. The programme only uses the other scenarios for budget reports!

To define budget scenarios, select Financial accounting -> Budget definition -> Budget scenarios.

Select a financial year. Then select Data -> Add row from the menu bar or right-click in the window and select Add row.

The scenario defined first is the default main scenario and therefore cannot be deleted. In addition, the fields based on and the initial ratio in the main scenario cannot be changed.

In the next step, we enter budget amounts for this main budget scenario.

The Import budget scenario function allows you to import a budget scenario from another SAP Business One company into a new budget scenario. During the operation, make sure that the G/L account codes in the source company match those in the target company.

The Copy budget scenario function allows you to copy budget data from a budget scenario to a target budget scenario in the same company for the same financial year or for the next financial year.

Step 4 - Definition of budget amounts

Finally, you define the budget amounts. Select Financial accounting -> Budget definition -> Budget.

Select the scenario for which you want to define a budget and select the required G/L accounts.

Definition of budget amounts

Enter an amount in local currency for each G/L account in the Local debit/credit column.

Please note that:

You can only define budget amounts for G/L accounts that are defined as relevant for the budget in the chart of accounts.
SAP Business One checks the budget for deviations from the debit side of the transactions registered for a G/L account. Warnings are only issued for accounts that have a budgeted amount in the debit column. You can use the credit field for sales accounts to set sales targets that you can track with the budget report.
When you create a new budget that accounts without previous budget definitions, the window does not display any accounts. In this case, select the Show accounts without budget checkbox.

You can also change the budget amount and the distribution method for each account. You can also change the distribution of budget amounts manually using the Budget Line Details window. Double-click on the required row number in the table or right-click on the row and select Row Details.

If you change the budget amounts manually, the Method column in the Budget scenarios ? Furnishing to Manual. Entries appear in red in the corresponding G/L account line.

The column 'Is' shows the balance of this account based on its posting entries.

When you define a budget amount for a G/L account that already has an accounting balance, SAP Business One displays a system message about existing transactions in the system and asks you if you want to restore the account's accumulator.

If you select Yes, the application copies the current accounting balance of the G/L account into the column 'Is' . This means that SAP Business One takes the current accounting balance as the starting point for calculating the budget amounts used. If you select No, SAP B1 ignores the current accounting balance of the G/L account. The calculation of the budget amounts used starts from this moment.

Definition of cost accounting amounts

If you manage cost accounting in the company, you have the option of distributing the budget amounts under the relevant distribution rules.

If you use dimensions, you should first select the relevant dimension.

You can then add distribution rules by right-clicking in the G/L account line and selecting the Add cost centre option.

In the Debit distribution rule column, enter the budget amount that you want to allocate to each distribution rule. Remember that the budget calculation is always carried out against the debit side.

You can then run the budget report against cost accounting. You can also specify the distribution rule in the budget report. These apply to the report created that reflects the budget used for the cost accounting activities.

Note that when checking for budget variances, SAP Business One does not take into account the amounts assigned to the distribution rules. It only takes into account the total amount of the G/L account.

Further information on the cost accounting can be found in the cost accounting training.

Using budgets in SAP Business One

The budget is now defined for the selected accounts, which allows you to carry out an analysis by comparing the defined budget with the actual business activity. During operation, when you create a transaction against a G/L account relevant to the budget, a check for deviation from the main budget scenario is carried out. The application then warns you if the budget is exceeded.

By selecting the warning option for the budget in the general settings, the user can choose to continue and add or cancel the transaction. Please note that this is subject to authorisation to confirm the budget variance.

If you select the option Block deviation from the budget the system blocks the creation of transactions that exceed the budget.

Budget report

Choose Financial accounting -> Financial reports -> Budget reports -> Budget report.

The budget report allows you to view the company's budget data according to your requirements. This report analyses the business activities that take place during a defined period in relation to a selected budget scenario.

Balance sheet budget reports

Choose Financial accounting -> Financial reports -> Budget reports -> Balance sheet budget report

The standard financial reports can be displayed together with the budget data: balance sheet, Slist of totals and balancesProfit and loss account.