If you cannot track where money is going, your organisation will overspend, departments will fight for leftover cash, and your annual plan becomes worthless. Budgeting and expense management in Dynamics 365 Finance solve this chaos by giving every department a clear spending limit and a way to report every purchase against that limit. For the MB-920 exam, you need to understand how budgets are created, how expenses are captured, and how the system compares planned versus actual spending.
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A simple way to picture Budgeting and Expense Management
Your kitchen table, covered in travel brochures, bank statements, and a stack of sticky notes. You and your partner are planning a two-week holiday to a rented cottage in Cornwall. You have a total budget of £3,000, saved over six months. That is your master budget, set at the start of the year by your finance team — in Dynamics 365 Finance, this is the primary budget.
Now, you break that £3,000 into smaller buckets: £1,200 for accommodation, £800 for petrol and car costs, £600 for food and groceries, £300 for activities, and £100 for emergency breakdown cover. These are your departmental budgets, assigned to different areas of the business. You give your teenage daughter the food bucket — she is the budget manager for groceries. She tracks every receipt in a shared notebook, which is like an expense report. When she buys a £30 supermarket shop, she records it against the food bucket.
Mid-holiday, you realise the car needs an unexpected new tyre (£120). You have a choice: raid the emergency fund (your contingency budget), or move money from the activities bucket (a budget transfer). In Dynamics 365 Finance, this is a budget revision or transfer, requiring approval from the budget controller — that is you. At the end of the holiday, you don’t just want to know total spend; you want a comparison: “We budgeted £600 for food; we actually spent £580. Great, we are £20 under.” That comparison is a budget vs actuals analysis, the core of expense management.
The key lesson: without a structured budget and a system to track every expense against it, you overspend, run out of money, and the holiday becomes a disaster. Dynamics 365 Finance gives you that structured system, so every department knows its limits and every pound is accountable.
In any organisation, money does not just appear and disappear randomly. There is a plan, and there is a record of what actually happened. Budgeting and expense management are the two sides of that coin.
A budget is a financial plan for a specific period, usually a year. It sets the maximum amount a department or project can spend. Think of it as a spending limit written down in advance. In Dynamics 365 Finance, budgets are created using a budget register entry. You enter the amounts, the period (for example, January 2026), and the department code. The system stores this plan.
An expense is any cost incurred by the organisation — buying office supplies, paying for a software licence, reimbursing an employee for a train ticket. Expense management is the process of recording, approving, and reporting those costs. In Dynamics 365 Finance, expenses are captured in expense reports, which employees submit through a workspace called Expense management.
The critical connection is the budget control feature. Budget control is a set of rules that checks every expense against the remaining budget before it is approved. If the purchase would cause the department to exceed its limit, the system blocks it. This prevents overspending before it happens. Without budget control, you only discover overspending after the money is gone.
There are two main types of budgets in Dynamics 365 Finance:
Original budget: The initial plan entered at the start of the period.
Revised budget: An updated plan after transfers or adjustments have been made during the period.
Budget revisions happen when money needs to move between departments or when unexpected income allows increased spending. These revisions require approval from a budget manager.
Now, what happens with the actual spending data? Every expense that goes through Accounts payable (paying vendor invoices) or through Expense management counts as actuals. The system automatically compares actuals to the budget for each department and period. This comparison is called a budget vs actuals report. It shows whether you are under budget (good), on budget (okay), or over budget (problem).
Dynamics 365 Finance also supports encumbrances. An encumbrance is a reservation of budget for a future expense that has not yet been invoiced. For example, if you sign a purchase order for £5,000 of furniture next month, the system reserves £5,000 from your budget now, even though the invoice has not arrived. This prevents you from accidentally spending that £5,000 on something else. Encumbrances are optional but widely used in government and non-profit organisations.
Finally, there are budget cycles. A budget cycle defines the period the budget covers, such as fiscal year 2026 (1 January to 31 December). You can have multiple budget cycles, for example, a separate cycle for capital projects versus operating expenses.
In summary, budgeting and expense management work together as a closed loop: plan the budget, record expenses, check against the plan, report the difference, adjust the plan if needed, and repeat. Dynamics 365 Finance automates this loop, reducing manual work and preventing financial mistakes.
Create the Original Budget
The finance team enters the planned spending limits for each department using a Budget register entry. This sets the baseline for the year and defines how much each department can spend.
Configure Budget Control Rules
An IT administrator sets up budget control to define which dimensions (like department or cost centre) are checked, what threshold triggers a warning, and whether to block or warn when the budget is exceeded.
Submit an Expense Report
An employee creates an expense report in the Expense management workspace, attaching receipts and categorising costs. This report is the request for reimbursement.
Approve the Expense with Budget Check
The approver reviews the expense report. The system automatically runs budget control: if the department has enough remaining budget, the report is approved and posted as an actual expense.
Review Budget vs Actuals
Management runs the budget vs actuals report to see how actual spending compares to the budget. This identifies departments that are over or under budget and informs decisions for budget revisions.
Process Budget Revisions
If a department needs more funds, a budget revision is created through a new budget register entry. The revision transfers money from another department or increases the total budget, requiring approval from a budget manager.
Imagine you work as a finance assistant for a mid-sized manufacturing company called GreenWare Industries. The company has 50 employees across three departments: Production, Sales, and Administration. Each department has an annual budget. It is February 2026, and you need to manage the budgets and approve expenses.
Step 1: The Finance Director creates the original budgets for the year. She uses Dynamics 365 Finance to open Budget register entries and enters £500,000 for Production, £200,000 for Sales, and £150,000 for Administration. She sets the budget cycle to Fiscal Year 2026. This step defines the plan.
Step 2: Two weeks later, the Sales Director submits an expense report for £1,200: train tickets and hotel for a client meeting. You, as the budget controller, receive a notification. Before you approve, the system runs budget control checks. It looks at the Sales department budget: original £200,000, minus any previously approved expenses, minus any encumbrances. If the remaining budget is enough, the system allows approval. You approve the report. The expense is now recorded as an actual.
Step 3: The Production Manager submits a purchase order for £50,000 for raw materials. This is a future expense. The system creates an encumbrance: it reserves £50,000 of the Production budget. The actual invoice will arrive next month. Now, the Production budget shows £500,000 original, £50,000 encumbered, and £0 actuals so far. The remaining available budget is £450,000.
Step 4: Mid-year, the Sales Director realises they need more money for a new marketing campaign. She requests a budget revision of £20,000 from Administration to Sales. You process a budget transfer in Dynamics 365 Finance. This reduces Administration budget by £20,000 and increases Sales budget by £20,000. The revision must be approved by the Finance Director.
Step 5: At the end of the quarter, you run a Budget vs Actuals report for all departments. You see that Production has spent £130,000 (encumbrances plus actuals) against a £500,000 budget — on track. Sales has spent £60,000 against a £200,000 budget — also on track. Administration has spent only £20,000 against a £130,000 budget (after the transfer) — under budget. You present this report to management, who use it to decide where to invest surplus funds.
What does an IT professional actually do with this? They configure the system. They set up budget control rules, define budget cycles, create budget models (templates for recurring budgets), and train users on submitting expense reports. They also troubleshoot when budget control blocks a legitimate expense — often caused by incorrect date ranges or expired budget cycles. They run periodic reports to ensure budgets are balanced and advise department heads on how to use the system.
Key tools an IT professional uses in Dynamics 365 Finance for this area:
Budget register entries (to create and revise budgets)
Budget control configuration (to set rules)
Expense management workspace (to view and approve reports)
Budget vs actuals inquiry (to compare planned and actual spending)
Encumbrance journal (to record future commitments)
The MB-920 exam tests your understanding of the concepts, not the fine-grained configuration steps. You will not be asked to click through menus. Instead, you need to know what each feature does, when to use it, and how the pieces fit together.
Here are the exact concepts the exam loves to test:
Difference between original budget and revised budget
Purpose of budget control (prevents overspending before it happens)
What an encumbrance is and when it is used (for purchase orders, not for regular invoices)
How expense reports are submitted and approved (through Expense management workspace)
The relationship between budgets and actuals (budget vs actuals report)
Budget cycles and their role in defining the period
Budget managers and budget controllers (who approves what)
Common traps in exam questions:
Trap: A question says “A department needs to increase its budget mid-year. What should they do?” The wrong answer is “create a new original budget.” The correct answer is “submit a budget revision” or “perform a budget transfer.” Original budgets are only for the initial plan.
Trap: “Budget control” is presented as “a reporting tool.” It is actually a preventative control — it checks before the expense happens, not after.
Trap: Encumbrances are described as “expenses that have been paid.” The truth: they are future commitments that have not yet been invoiced or paid.
Trap: Expense reports are confused with vendor invoices. Expense reports are for employee reimbursements; vendor invoices are for bills from suppliers.
Exam topics to memorise:
Budget register entry: the transaction that creates or modifies a budget.
Budget control configuration: the rules that define which dimensions (department, cost centre) are checked, and the threshold for warnings.
Budget cycle: the time period (e.g., fiscal year) the budget covers.
Budget model: a template for organising budgets (can be used for planning and forecasting).
Encumbrance: a reservation of budget for a future purchase order.
Budget vs actuals: a report that compares planned spending to actual spending.
Expense management: the module where employees submit travel and expense reports.
Question types on the exam:
Multiple-choice: Which feature prevents a department from exceeding its budget? Answer: Budget control.
Multiple-select: Which of the following are types of budgets? (Select all that apply.) Options: Original budget, Revised budget, Encumbrance. Answer: Original and Revised. Encumbrance is a type of commitment, not a budget type.
True/False: “An expense report can only be submitted by the Finance department.” Answer: False. Any employee can submit an expense report for their own expenses.
Scenario-based: “A company signs a purchase order for £10,000. The invoice will arrive next month. When does the budget control check happen?” Answer: When the purchase order is created (encumbrance check) and again when the invoice is posted.
Focus on understanding the flow: Plan (budget) -> Commit (encumbrance) -> Spend (expense) -> Report (budget vs actuals). The exam will expect you to sequence these steps correctly.
Also note that budgeting in Dynamics 365 Finance integrates with other modules like Accounts payable, General ledger, and Project management. You may see cross-module questions, e.g., “Which module records the actual expense from a vendor invoice?” Answer: Accounts payable, but the budget check happens in the Budgeting module.
A budget in Dynamics 365 Finance is a spending limit set for a specific department and period, stored in a budget register entry.
Budget control prevents overspending by checking every expense against the remaining budget before approval.
An encumbrance reserves budget for a future purchase order, ensuring that committed funds are not accidentally used elsewhere.
Expense reports are how employees get reimbursed for out-of-pocket costs like travel, meals, and supplies — not just travel.
The budget vs actuals report compares planned spending to real spending and is the key tool for financial accountability.
A budget revision (transfer) is needed to move money between departments or increase the overall budget mid-year.
Budget cycles define the time period the budget covers, such as a fiscal year, and multiple cycles can exist at once.
The exam focuses on knowing when to use original budget vs revised budget and understanding encumbrances as commitments, not actuals.
These come up on the exam all the time. Here's how to tell them apart.
Original Budget
Set at the beginning of the period
Cannot be changed after creation
Represents the initial plan
Revised Budget
Created during the period
Used to adjust spending limits
Requires approval from a budget manager
Expense Report
Submitted by employees for reimbursement
Includes personal costs like travel and meals
Processed in the Expense management workspace
Vendor Invoice
Submitted by suppliers for goods or services
Covers business purchases from external vendors
Processed in Accounts payable
Encumbrance
Reserves budget for future commitment
Has not yet been invoiced or paid
Appears as a commitment on budget reports
Actual Expense
Reflects money already spent
Has been invoiced and posted
Appears in budget vs actuals as spend
Budget Control
Prevents overspending before it happens
Operates in real time during approval
Is a configuration setting
Budget vs Actuals Report
Shows spending after it happens
Is a historical report
Is a standard inquiry or report
Mistake
Budget control only works after you have already spent the money — it catches overspending afterward.
Correct
Budget control checks the budget before the expense is approved, preventing overspending in real time.
Newcomers assume any 'control' is retrospective like a monthly report, but Dynamics 365 Finance has real-time preventive controls built in.
Mistake
An expense report is only for travel costs like flights and hotels.
Correct
Expense reports cover any employee-incurred cost, including office supplies, client meals, mileage, and even small equipment purchases.
The word 'expense' often makes people think of travel reimbursement only, ignoring the broader scope of the Expense management module.
Mistake
An encumbrance is the same as an actual expense — it has already been spent.
Correct
An encumbrance is a commitment for a future expense (like a purchase order), not money that has left the bank account yet.
The term 'encumbrance' sounds like a cost that has been incurred, so beginners confuse it with actual spending.
Mistake
You can have only one budget cycle at a time for the whole organisation.
Correct
You can have multiple budget cycles running simultaneously, for example, one for operating expenses and another for capital projects.
People assume budgets are always annual and singular, but Dynamics 365 Finance supports multiple overlapping cycles for different purposes.
Mistake
The original budget is the only budget you ever need; revisions are rare and complex.
Correct
Budget revisions are common in most organisations to reallocate funds between departments or respond to changing conditions.
Beginners think a budget is a fixed plan, but real businesses adjust budgets regularly as priorities change.
Reveal each answer, then mark whether you got it right. Score 60%+ to unlock the next chapter.
A budget is the planned spending limit for a department or project. An actual is the real money spent, recorded when an expense report or vendor invoice is posted.
Budget control checks the remaining available budget every time an expense or purchase order is submitted. If the expense would exceed the budget, the system blocks it or warns the user before approval.
An encumbrance is a reservation of budget for a future purchase order that has not yet been invoiced. It prevents you from spending money that is already committed to something else.
Yes, by creating a budget revision (transfer) in the Budget register entry. This reduces one department’s budget and increases another’s, and it must be approved by a budget manager.
Not necessarily. Budget control can be configured to apply only to certain departments, cost centres, or transaction types. It is optional and customisable.
Employees use the Expense management workspace to create an expense report, add line items for each cost, attach digital receipts, and submit it for approval.
You've finished Budgeting and Expense Management. Continue through the MB-920 study guide to build a complete picture of the exam.
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