Income and expense budget

Here you will learn how to set up the application to generate your enterprise's income and expense budget.

With the subsystem tools, you can get flexible solutions depending on the industry you work in and your company's management methods. You can export the budgeting model and its basic catalogs (budgeting scenarios, budget profiles, budgeting steps, and so on) to a file and import them to another infobase. Along with the standard configuration, you get a file with a budgeting model example. Below you can find recommendations on how to set up the application based on the economic theory and best practices.

An underlying approach to planning is to develop a multi-factor and interrelated model of financial plans. This principle allows you to carry out the factor analysis of received values and make changes to financial plan values with minimal labor costs. In other words, one or several system sources must be used to calculate each new amount. If you cannot use system data as it does not exist or is not reliable, you can enter required data manually.

Before you continue with the setup, we recommend that you configure:

• Basic settings of financial planning
• Capital investment budget (to correctly carry out fixed asset depreciation and intangible asset amortization charges allocated to profitability & cost).
• Master plans

There are two primary budgeting methods: incremental and zero-based. The budgeting method determines a data source and settings of data receipt rules. Incremental budgeting is commonly used by non-profit organizations. Business enterprises prefer zero-based budgeting. Here we have covered only the zero-based budgeting method as the solution is mostly aimed at business enterprises. You can use the incremental method as well. Just specify actual and planned data of the previous period in the receipt settings and use factor values (non-financial items) or manually entered data as an increment. For the incremental method, information sources can be the following: data on actual transactions of previous periods and data on your company's financial plans of previous periods.

All financial plan amounts of the budget are VAT exclusive. That is why actual data, including revenue, must be VAT exclusive.

Make sure you register indicators of financial plan amounts and quantity with a positive sign. For negative data, you need to set up the display and calculation formulas separately for each budget type.

Step 1. Generate a structure of budget flow items. Budget flow items are used to generate a structure of the income and expense budget.

Step 2. Generate a list and a structure of budget data related to the income and expense budget. Note that a data structure must be created based on the enterprise policy of financial planning and budgeting.

The economic theory outlines the following financial plan (budget) categories:

• Operating financial plans. The system source of operating budgets is the inventory planning subsystem. It allows you to calculate financial plans. You can register operating financial plans with inventory planning documents, so you do not need to create a separate budget profile for them.
• Auxiliary financial plans. These plans provide forms where you can enter and register planned data manually.
• Master budget. These plans provide a report form for the data registered in the application with documents of auxiliary and operating financial plans. You can also use these reports to carry out the variance analysis or build forecast models.

For budgets, select a planning method: fixed boundaries of the planning horizon or rolling boundaries of the planning horizon, where the horizon amount remains the same when the planning period is moved forward. With the rolling planning, you need to check and update the financial plan for new periods regularly. Keep in mind that you need to select a planning method based on the enterprise policy of financial planning and budgeting.

Step 3. Set up rules to request information from system sources.

Once you set up the application, the financial planning subsystem is ready for use as a tool for financial planning of the income and expense budget.