In the previous post, we looked at the postings that happen when a product receipt is done for stocked products in case of Procure to Pay scenario. Let us continue further in the scenarios. The next scenario that we will look at is the receiving in case of non-stocked products.

Receipt Accounting in case of non-stocked products

In Dynamics 365, you can configure services either by configuring the item model group as non-stocked and assigning it to products or by using procurement categories. Either way, the accounting treatment/effect is the same at the point of product receipt. Here is the set of accounting entries that happen in this scenario.

Explanation of the accounting entry:

1. Purchase expenditure for product: This account should be an expense account. Reason being, the services/items that are procured with this method are non-capitalizable and these need to be expensed out as they are not part of an asset.
2. Purchase accrual:  A brief description of Accrued Liabilities from Wikipedia “Accrued liabilities are liabilities that reflect expenses on the income statement that have not been paid or logged under accounts payable during an accounting period; in other words, obligations for goods and services provided to a company for which invoices have not yet been received. Examples would include accrued wages payable, accrued sales tax payable, and accrued rent payable.” In this case, we have received the goods from the vendor, while the vendor has not formally requested for the payment to be done in form of an invoice. However, in such cases, the liability will have to be accounted and this is usually accounted as an Accrual. In case of the goods being received, this will be recognized under Purchase Accrual transaction type in Dynamics 365.

In my experience, I have seen 2 types of customers who would want this accounting entry to happen and also the ones who would not want this to happen. As a best practice and a conservative approach, this accounting entry should be configured in the system to take place. Reason being:

There can be scenarios where the vendor performs some services in one month or in parts and issues after the entire work is completed or if the request is coming from a purchase requisition raised by an employee and if the vendor delivers the equipment or stationery items in multiple deliveries, it is required to accrue your liability (which is the posting to the accrual account) in the month when the deliveries or services are being received and also recognize expense during the delivery itself (which is the Purchase expenditure un-invoiced).

Note: The same kind of accounting effect occurs when Post physical inventory on model group(s) for stocked products is unmarked, and Accrue expense on liability is marked.

In the next post, we will take a look at additional accounting entries that occur at product receipt stage.