In today’s blog we will talk about “accrual scheme” feature which is natively available in Dynamics 365 FO (Also available in AX 2012) which most of the companies does not explore though they have the requirement for the same.
Before moving forward let’s first understand the purpose and concept behind using Accrual scheme.
Accruals are used in accrual accounting to track revenue that is recognized in the period that it's earned in, not when the actual payment is received, and same concept applies to track expenses (costs) that are only recognized when they occur, not when the actual payment is made.
In most of the organization we have transactions where we pay in advance for a specific expense and that point of time, we record that as advance and then moving forward we recognize the expense by reversing advance or prepaid on Monthly basis. So, let’s understand this with one example.
Use Case: Let’s say a company buys the Software License subscription of $647 for 3 months on “1st May 2021” though they will record the invoice on 1st May and pay the amount to vendor but customer (We as a Company) cannot show that as “Expense in P&L” for the month of “May 2021”. So, first it has to be recorded as Balance sheet item as prepaid and then every month for the duration of subscription we have to reverse the prepaid and post the “Expense” for a specific month. Here are the expected Accounting entries:
|At the time of Invoice Booking:|
|License Cost A/C||$647|
|To Vendor A/C||$647|
|Prepaid schedule for 3 months to recognize expenses, so for next 3 months’ entries will be:|
|Prepaid Expense A/C||($647 / 3)|
|To License Cost A/C||($647 / 3)|
Above discussed scenario can be solved using with one-time setup of “Accrual Scheme” feature for Dynamics 365.
Follow the below procedure to setup Accrual schemes for prepaid expenses.
If you see we have all the entry posted as per the expectations, It has posted Complete amount in “Prepaid Expense Account” and then on monthly basis it has calculated and posted in respective months for next 3 months.
That’s all about this blog. This feature can really make the change in your implementation. So, try to explore this and implement.
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