Study guide
15.1 Budget Models, Budget Codes & Allocation Terms
Microsoft Certified: Dynamics 365 Finance Functional Consultant Associate MB-310
Track your progress as you read
Finished sections get a check mark.
1 Chapter 1: MB-310 Exam Overview & Financial Architecture
1.1 MB-310 Exam Structure, Skills Measured & Consultant Role 1.2 Dynamics 365 Finance Architecture, Legal Entities & Global Address Book 1.3 Hands-on Lab Strategy & Preparation Framework
2 Chapter 2: Chart of Accounts & Main Accounts
2.1 Designing Chart of Accounts & Main Account Types 2.2 Main Account Categories & Ledger Account Aliases 2.3 Balance Control Accounts & Year-End Opening Account Setup 2.4 Legal Entity Overrides for Main Accounts & Dimensions
3 Chapter 3: Financial Dimensions & Account Structures
3.1 Custom & Entity-Backed Financial Dimensions 3.2 Financial Tags: Limits, Storage & Ledger Settlement Use 3.3 Account Structures, Segment Criteria & Activation 3.4 Advanced Rules & Advanced Rule Structures 3.5 Derived Dimensions & Dimension Default Templates
4 Chapter 4: Ledgers, Calendars & Currencies
4.1 Fiscal Calendars, Period Statuses & Module Access Control 4.2 Posting Layers, Multi-GAAP Reporting & the Ledger Form 4.3 Currency Exchange Types, Rate Providers & Triangulation 4.4 Accounting & Reporting Currencies (Dual-Currency Architecture) 4.5 Foreign Currency Revaluation & Revaluation Posting Profiles
5 Chapter 5: General Ledger Journals & Allocations
5.1 Journal Names & Voucher Number Sequences 5.2 Journal Control & Posting Restriction Rules 5.3 Journal Entry, the One-Voucher Rule, Validation & Posting 5.4 Reversals, Storno Corrections & Excel Integration 5.5 Ledger Allocation Rules & the Four Allocation Methods 5.6 Allocation Processing & Periodic (Recurring) Journals
6 Chapter 6: Intercompany Accounting & Settlements
6.1 Intercompany Accounting Setup & Due-To / Due-From Postings 6.2 Intercompany Journal Processing & Multi-Company Vouchers 6.3 Ledger Settlements Configuration & Processing
7 Chapter 7: Cash and Bank Management
7.1 Bank Groups, Bank Accounts & Ledger Integration 7.2 Payment Formats, Bank FX Revaluation & Shared Payment Setup 7.3 Manual vs. Advanced Bank Reconciliation & Statement Formats 7.4 Matching Rule Sets, Reconciliation Execution & Reversals 7.5 Cash Flow Forecasting Setup & Automation 7.6 Customer and Vendor Netting
8 Chapter 8: Periodic Closing & Financial Consolidations
8.1 Financial Period Close Workspace, Closing Roles & Schedules 8.2 Year-End Close Configuration & General Ledger Balance Carryforward 8.3 Consolidations Online: Legal Entity Setup, COA Mapping & Currency Translation 8.4 Import Consolidations & Intercompany Elimination Rules
9 Chapter 9: Sales Tax & Withholding Tax
9.1 Sales Tax Engine Hierarchy, Authorities & Settlement Periods 9.2 Ledger Posting Groups, Sales Tax Codes & Calculation Methods 9.3 Sales Tax Groups, Item Sales Tax Groups & Tax Exemptions 9.4 Sales Tax Adjustments and Settle and Post Sales Tax 9.5 Withholding Tax & US 1099 Vendor Reporting
10 Chapter 10: Accounts Receivable Setup & Invoicing
10.1 Customer Master, Customer Groups & Shared Customers 10.2 Customer Posting Profiles & Account Code Precedence 10.3 Free Text Invoices, Recurring Invoice Templates & AR Charges 10.4 Sales Order Invoicing, Billing Classifications & Prepayments 10.5 Customer Payment Methods, Payment Processing & Customer Bank Accounts
11 Chapter 11: Credit Management & Collections
11.1 Credit Management Architecture & Customer Credit Groups 11.2 Risk Scoring, Credit Limits, Blocking Rules & Credit Holds 11.3 Aging Definitions, Collections Workspace & Customer Pools 11.4 Collection Letter Sequences & Interest Notes 11.5 Customer Write-Offs, Bad Debt & Write-Off Reversals
12 Chapter 12: Subscription Billing & Revenue Deferrals
12.1 Recurring Contract Billing, Billing Schedules & Milestones 12.2 Deferral Principles, Deferral Defaults & Schedule Calculation Methods 12.3 Recognition Processing, Expense Deferrals & Modifying Schedules 12.4 Multiple Element Revenue Allocation (MEA / ASC 606)
13 Chapter 13: Accounts Payable & Invoice Processing
13.1 Shared Vendors, Global Address Book & Vendor Groups 13.2 Vendor Posting Profiles, AP Parameters & Vendor Bank Accounts 13.3 Invoice Matching Setup (2-Way, 3-Way), Tolerances & Exceptions 13.4 Vendor Invoicing Methods, Journals & Invoice Automation
14 Chapter 14: Vendor Payments & Expense Management
14.1 Methods of Payment & the Vendor Payment Proposal Engine 14.2 Generating Payments, Centralized Payments & Check Lifecycle 14.3 Expense Management Configuration, Categories & Policies 14.4 Expense Reports Processing, Mobile Receipts & Intercompany Expenses
15 Chapter 15: Budgeting & Budget Control
15.1 Budget Models, Budget Codes & Allocation Terms 15.2 Budget Register Entries, Workflows & Budget vs. Actual 15.3 Budget Transfer Rules & Processing Budget Transfers 15.4 Budget Control Configuration, Cycles, Rules & Budget Groups 15.5 Budget Funds Available, Over-Budget Permissions & Document Budget Check 15.6 Budget Planning Framework, Organization Hierarchies & Planning Processes 15.7 Budget Plans, Scenarios, Allocations & Generating Register Entries
16 Chapter 16: Fixed Assets Configuration & Transactions
16.1 Fixed Asset Groups, Asset Records & Group/Book Mapping 16.2 Depreciation Profiles: Methods & Conventions 16.3 Fixed Asset Books, Derived Books & Posting Profiles 16.4 Fixed Asset Acquisition Pathways 16.5 Depreciation Proposals, Multi-Company Runs & Fixed Asset Budgets 16.6 Fixed Asset Disposals: Sale, Scrap & Disposal Accounting 16.7 Fixed Asset Splits, Transfers & Reclassification 16.8 Asset Leasing (IFRS 16 / ASC 842)
15.1 Budget Models, Budget Codes & Allocation Terms
Key Takeaways Explain This Topic AI
A budget model is the container for budget register entries and can hold sub-models that roll up for reporting.
Budget codes carry exactly one of six budget types: Original budget, Transfer, Revision, Encumbrance, Preencumbrance, or Carry-forward budget.
Workflow is attached to a budget code, not to a budget type, and is optional; when present it must finish before the entry reaches Completed.
Period allocation keys spread a line across fiscal periods and budget allocation terms spread it across financial dimension values.
Running either allocation reverses the original budget account line and writes the allocated lines in its place.
Last updated: August 2026
15.1 Budget Models, Budget Codes & Allocation Terms
Quick Summary: In enterprise financial management, organizations must establish, adjust, and monitor financial targets for revenues, expenses, capital expenditures, and operational headcount. In Microsoft Dynamics 365 Finance, the Budgeting module provides a three-tiered architecture: Basic Budgeting (recording and updating budget register entries without real-time enforcement), Budget Control (programmatic real-time funds availability validation on transactional source documents), and Budget Planning (multi-scenario collaborative budget preparation and workflow modeling). This section covers the complete configuration of Basic Budgeting, budget models, budget codes, allocation terms, budget register entries, and variance reporting.
1. Basic Budgeting Architectural Framework
Dynamics 365 Finance divides budgeting functionality into three complementary pillars: +---------------------------------------------------------------------------------------------------------+
- | Dynamics 365 Finance Budgeting Architecture |
- +---------------------------------------------------------------------------------------------------------+
- | |
- | +-----------------------------------+ +------------------------------------------------------+ |
- | | Budget Planning | | Budget Control | |
- | | - Multi-Scenario Modeling | | - Real-Time Funds Available Validation | |
- | | - Organizational Hierarchies | | - Hard Stops, Warnings & Over-Budget Thresholds | |
- | | - Top-Down / Bottom-Up Workflows| | - PRs, POs, Invoices, Expenses, GL Journals | |
- | | - Matrix Layouts & Excel Add-in | | - Pooled Budget Groups across Dimensions | |
- | +-----------------------------------+ +------------------------------------------------------+ |
- | | ^ |
- | | (Generates Approved Entries) | (Validates Entries) |
- | v | |
- | +---------------------------------------------------------------------------------------------------+ |
- | | Basic Budgeting | |
- | | - Master Budget Models & Sub-Models | |
- | | - Budget Codes & the 6 Budget Types (Original budget, Transfer, Revision, etc.) | |
- | | - Period Allocation Categories & Dimension Allocation Terms | |
- | | - Budget Register Entries (Header, Lines, Workflows, Excel Integration) | |
- | | - Budget vs. Actual Inquiries & Financial Reporting (Management Reporter) | |
- | +---------------------------------------------------------------------------------------------------+ |
- +---------------------------------------------------------------------------------------------------------+
- Core Differences Between Budgeting Capabilities
Functional Dimension Basic Budgeting Budget Control Budget Planning
Primary Objective Record, revise, and report budget amounts Enforce real-time spending limits Formulate and negotiate future budgets
Enforcement Style Informational / Detective Programmatic / Preventative Collaborative / Workflow-driven
Transactional Impact No document blocking Blocks PRs, POs, Invoices, GL Journals Pre-transactional planning only
Data Storage Budget register entry lines Budget source tracking / BFA cache Budget plan scenario lines
Configuration Path Budgeting > Setup > Basic budgeting Budgeting > Setup > Budget control Budgeting > Setup > Budget planning
2. Budget Models & Hierarchical Sub-Models
Budget models ( Budgeting > Setup > Basic budgeting > Budget models ) establish the container structure for categorizing and aggregating financial estimates within a legal entity. +---------------------------------------------------------------------------------------------------+
- | Budget Model Configuration Hierarchy |
- +---------------------------------------------------------------------------------------------------+
- | Budget Model ID: [ FY2026_MASTER ] Description: Corporate Master Operating Budget 2026 |
- | Budget Type: [ Master / Top-Level ] Cash Flow Forecast: [ Yes ] Status: [ Open ] |
- +---------------------------------------------------------------------------------------------------+
- | SUB-MODELS FASTTAB: |
- | Sub-Model ID | Description | Cash Flow Forecast | Model Status |
- | :------------- | :--------------------------------- | :----------------: | :-------------------- |
- | `FY2026_CORP` | Corporate Administration Budget | Yes | Open |
- | `FY2026_SALES` | Commercial Sales & Marketing | Yes | Open |
- | `FY2026_OPS` | Manufacturing & Supply Chain Ops | Yes | Open |
- | `FY2026_CAPEX` | Capital Expenditure Projects | No | Open |
- +---------------------------------------------------------------------------------------------------+
- Budget Model Configuration Parameters
Budget Model ID & Name: Unique identifier and descriptive label.
Sub-models FastTab: Allows linking multiple granular sub-models to a top-level parent model. When inquiries or reports are executed on the parent model FY2026_MASTER , the system automatically consolidates budget figures across all child sub-models ( FY2026_CORP , FY2026_SALES , FY2026_OPS , FY2026_CAPEX ).
Cash Flow Forecast Toggle: When set to Yes , amounts posted against this budget model are automatically included in the Cash and Bank Management cash flow forecasting engine.
Stop / Block Status (Stopped): When toggled to Yes , prevents users from creating or posting new budget register entries against the model, effectively freezing the budget.
Note
A sub-model can belong to only one parent budget model in the same hierarchy. However, you can create independent, standalone budget models for parallel scenarios (e.g., FY2026_OPTIMISTIC vs. FY2026_PESSIMISTIC ).
3. Budget Codes, Budget Types & Transaction Classification
Budget codes ( Budgeting > Setup > Basic budgeting > Budget codes ) classify budget register entries, determine their accounting treatment, link to specific number sequences, and enforce workflow governance. +---------------------------------------------------------------------------------------------------------+
- | Budget Codes & Budget Types Matrix |
- +---------------------------------------------------------------------------------------------------------+
- | Budget Code | Budget Type | Functional Description & Business Use Case | Workflow |
| :---------- | :----------------------- | :---------------------------------------------------- | :------------ |
- | `ORIG_BUD` | **Original budget** | Approved baseline budget at the start of the cycle. | Optional |
- | `XFER_DEPT` | **Transfer** | Zero-sum move of funds between dimension values. | Optional |
- | `REV_ALLOC` | **Revision** | Increases or decreases the total authorized budget. | Optional |
- | `ENCUMB` | **Encumbrance** | Commitment reserve for purchase orders (public sector).| Optional |
- | `PRE_ENC` | **Preencumbrance** | Commitment reserve for purchase requisitions. | Optional |
- | `CARRYFWD` | **Carry-forward budget** | Rolls unspent funds from the prior year forward. | Optional |
- +---------------------------------------------------------------------------------------------------------+
- Deep-Dive: The Six Budget Types
Microsoft documents exactly six budget types that a budget code can carry. Memorize the list — a favourite distractor style on MB-310 is a plausible-sounding invented type such as "Amendment", "Apportionment", "Preliminary", or "Zero-based". None of those exist in Dynamics 365 Finance.
Original budget: The initial, baseline financial plan adopted by the board or executive management. An account combination typically receives only one original budget entry per budget cycle.
Transfer: A zero-sum reallocation of funds between two or more financial dimension combinations or main accounts (for example, moving $15,000 from 600100-Travel-Dept10 to 600200-Training-Dept10 ). The source line carries a negative amount and the destination line an offsetting positive amount.
Revision: An adjustment that increases or decreases the total approved budget authorization, rather than moving money sideways within it (for example, the board approves an additional $500,000 for a product rollout).
Encumbrance: The commitment reserve recorded against confirmed purchase orders, used mainly in public-sector and commitment-accounting scenarios.
Preencumbrance: The earlier commitment reserve recorded against purchase requisitions, before a purchase order exists.
Carry-forward budget: Used at year-end to roll remaining unspent budget balances, or outstanding encumbered purchase order balances, from the closing fiscal year into the new one.
Budget Code Parameters
Budget Type: One of the six types above; it defines the mathematical handling and the reporting classification.
Workflow: Attaching a workflow is optional and is done per budget code, not per budget type . If a workflow is associated with a budget code, it is enabled for every budget register entry that uses that code, and its steps must complete before the entry can reach Completed .
Reason Code Requirement: Can be set to Mandatory or Optional , forcing users to state why a revision or transfer is being requested.
Important
Governance is enforced by the workflow you hang on the budget code. There is no built-in rule that "transfers always need approval" — an unworkflowed Transfer code updates budget balances immediately.
4. Allocation Terms: Period & Dimension Spreading
To prevent manual data entry across 12 monthly periods or across multiple departments, Dynamics 365 Finance provides automated Allocation Terms .
- A. Period Allocation Categories
- Configuration Path: Budgeting > Setup > Basic budgeting > Period allocation categories
Purpose: Distributes a lump-sum annual budget amount across specific fiscal periods based on predefined percentage or weight rules. +---------------------------------------------------------------------------------------------------+
- | Period Allocation Category: [ SEASONAL_Q4 ] |
- +---------------------------------------------------------------------------------------------------+
- | Period / Month | Allocation Method | Percentage Allocation | Example: $120,000 Annual Budget Line |
- | :------------- | :---------------- | :-------------------- | :----------------------------------- |
- | **Period 1 (Jan)** | Percent | 5.00 % | $6,000.00 |
- | **Period 2 (Feb)** | Percent | 5.00 % | $6,000.00 |
- | **Period 3 (Mar)** | Percent | 5.00 % | $6,000.00 |
- | **Period 4 (Apr)** | Percent | 5.00 % | $6,000.00 |
- | **Period 5 (May)** | Percent | 5.00 % | $6,000.00 |
- | **Period 6 (Jun)** | Percent | 5.00 % | $6,000.00 |
- | **Period 7 (Jul)** | Percent | 10.00 % | $12,000.00 |
- | **Period 8 (Aug)** | Percent | 10.00 % | $12,000.00 |
- | **Period 9 (Sep)** | Percent | 10.00 % | $12,000.00 |
- | **Period 10 (Oct)**| Percent | 12.00 % | $14,400.00 |
- | **Period 11 (Nov)**| Percent | 12.00 % | $14,400.00 |
- | **Period 12 (Dec)**| Percent | 15.00 % | $18,000.00 |
- | **Total** | — | **100.00 %** | **$120,000.00** |
- +---------------------------------------------------------------------------------------------------+
- Common Period Allocation Methods
Equal: Divides the line amount equally across the active fiscal periods (e.g., $120,000 / 12 = $10,000/month).
Percent: Applies explicit user-defined percentages per period (must sum to exactly 100.00%).
Factor / Weight: Proportions calculated based on relative integer weights (e.g., 4-4-5 retail calendar retail weights).
- B. Budget Allocation Terms
- Configuration Path: Budgeting > Setup > Basic budgeting > Budget allocation terms
Purpose: Defines the percentage of a budget register entry that is allocated to specific financial dimension values, splitting a single high-level budget line into multiple discrete dimension combinations.
Note
Do not confuse budget allocation terms with the ledger allocation rules covered in 5.5. Ledger allocation rules distribute posted ledger amounts; budget allocation terms distribute a budget register entry line.
C. Running an Allocation on a Budget Register Entry
Both allocation styles are launched from the saved line in the Budget account entries grid:
Allocate across periods — pick a period allocation key , then select Allocate .
Allocate to dimensions — pick a budget allocation term , then select Allocate .
In either case Dynamics 365 Finance creates a reversal entry for the original budget account line and then writes the newly allocated lines, so the grid shows the original line, its reversal, and the spread. Finish with Update budget balances . +---------------------------------------------------------------------------------------------------+
- | Dimension Allocation Terms: IT Software Licensing |
- +---------------------------------------------------------------------------------------------------+
- | Target Account-Dimension Combination | Percentage | Allocated Share of $100,000 Budget |
- | :------------------------------------------- | :--------- | :----------------------------------- |
- | `601500-Dept_001-BU_Corp (Corporate HQ)` | 40.00 % | $40,000.00 |
- | `601500-Dept_002-BU_Retail (Retail Ops)` | 35.00 % | $35,000.00 |
- | `601500-Dept_003-BU_Mfg (Manufacturing)` | 25.00 % | $25,000.00 |
- | **Total Distributed** | **100.00 %**| **$100,000.00** |
- +---------------------------------------------------------------------------------------------------+