Financial postings in Dynamics AX/ Dynamics 365 for Financials and Operations – Part 3

In the last post we have reviewed the accounting upon on product receipt for non-stocked products. Let us now go further and review the accounting for Invoicing. We will also touch upon some more different accounting entries that occur.

Invoice Accounting in case of non-stocked products:

Below are the accounting entries that would occur at the point of invoicing for any non-stocked products or category purchases.

Firstly the receipt accounting would have to be reversed. This is because the actual expense is now being recorded at the time of Invoicing and also the accrual would have to be released as well. So essentially, the accounting would look like as below:

Account type Transaction type in Dynamics 365 Transaction type in Microsoft Dynamics AX 2012 Debit Credit
Balance sheet/Liability Purchase Accrual Purchase Accrual X
Profit and Loss/Expense Purchase expenditure un-invoiced Purchase expenditure un-invoiced X
Profit and Loss/Expense Purchase expenditure for expense Purchase expenditure for expense X
Balance sheet/Liability Vendor balance Vendor balance X

The first 2 are reversal of the receipt accounting entry that we have reviewed in this blog post here (https://vamsipraneethdaxblog.wordpress.com/2017/07/13/financial-postings-in-dynamics-ax-dynamics-365-for-financials-and-operations-part-2/)

  1. Purchase expenditure for expense: This is the cost of the services procured and whatever is the cost the item is being evaluated at. This cost includes the purchase cost of the service item i.e., any line amount discounts deducted, plus any miscellaneous charges that are loaded on to the item.
  2. Vendor balance: As straight forward as it can get, this is the balance that is outstanding for the vendor against this invoice.

Invoice Accounting in case of stocked products:

In case of a stocked product, the accounting would be similar to what it is in case of non-stocked products. We have reviewed in the first blog post about the receipt accounting (https://vamsipraneethdaxblog.wordpress.com/2017/07/10/financial-postings-in-dynamics-ax-dynamics-365-for-financials-and-operations-part-1/). The below is the accounting that takes place in case of Invoicing for a stocked product.

Account type Transaction type in Dynamics 365 Transaction type in Microsoft Dynamics AX 2012 Debit Credit
Balance sheet/Liability Purchase Accrual Purchase Accrual X
Balance sheet/Liability Cost of purchased materials Purchase expenditure for product X
Balance sheet/Liability Cost of purchased materials invoiced Purchase, inventory receipt X
Balance sheet/Liability Vendor balance Vendor balance X

So essentially, the first 2 lines of the accounting are the reversal of what we have reviewed in the first part of the blog.

The next 2 are:

  1. Cost of Purchase Materials: This is the cost of the items procured. This cost includes the purchase cost of the item i.e., any line amount discounts deducted, plus any miscellaneous charges that are loaded on to the item.
  2. Vendor balance: As straight forward as it can get, this is the balance that is outstanding for the vendor against this invoice.

These are the basic accounting entries for procurement cycle. So do I mean that there are more than these accounting entries in the procurement cycle? Yes I do mean that and I want to shed some light on them, as they get tricky.

Mysterious case of Purchase expenditure for product:

We keep wondering what has caused the additional accounting entry of purchase expenditure for product although the debit and credit knock the entry off with no balance left in the account. The reason why this happens is due to the way the accounting has to take place in Dynamics 365 for Finance and Operations. Let us take a look at the below accounting. Note that my transaction currency is CAD and accounting currency is USD and the invoice value of this PO is 3000 CAD which is translated to 2415.07 USD (using an hypothetical exchange rate).

Journal number Voucher Ledger account Posting type Account name Description Currency Amount in transaction currency Amount Amount in reporting currency Posting layer
020877 PIV-110001006 200110-001- Vendor balance Accounts Payable – Other Vendor invoice CAD -3,000.00 -2,415.07 -2,415.07 Current
020877 PIV-110001006 600180-001—TV&Video Purchase expenditure for product Raw Materials Receipts Vendor invoice USD -2,415.07 -2,415.07 -2,415.07 Current
020877 PIV-110001006 600180-001—TV&Video Purchase expenditure for product Raw Materials Receipts Vendor invoice CAD 3,000.00 2,415.07 2,415.07 Current
020877 PIV-110001006 200140-001- Purchase, accrual Accrued Purchases – Received Not Invoiced Vendor invoice CAD 3,000.00 2,415.07 2,415.07 Current
020877 PIV-110001006 140200-001- Cost of purchased materials invoiced Finished Goods Inventory Vendor invoice USD 2,415.07 2,415.07 2,415.07 Current
020877 PIV-110001006 140200-001- Cost of purchased materials received Finished Goods Inventory Vendor invoice USD -2,415.07 -2,415.07 -2,415.07 Current

Technically all the vendor liability has to be posted in the transaction currency. That is if a vendor sends you an invoice in CAD, then it means you’d have to recognize the liability in your accounting books in CAD as that is the amount that you end up paying the vendor. This explains the firsts row which has accounting entry of 3000 CAD. However, the subsequent offsetting entry would have to be booked as well to balance the credit with a debit. If you take a closer look in the table above, you can see that the 3rd row has same set of accounting as in the first row but for debit of 3000 CAD.

Similarly, cost of your goods should always be booked in the accounting currency of the company/legal entity. This means, the Cost of purchased materials invoiced should be in USD with the value of 2415.07 which is in row 5. And similarly as in the above case of the vendor liability, where there needs an accounting balance of credit of 2415.07 USD, you can see that in the 2nd row.

Let us continue in the next part with some more examples of accounting in the procurement side.

 

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