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Dynamics 365 Community / Blogs / The Dynamics Troubleshooter / Dynamics 365 Finance: Settl...

Dynamics 365 Finance: Settlement transactions in AP/AR, why are they there?

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Paolo Cecchelli Profile Picture Paolo Cecchelli 330
Sometimes after the go-live, usually the accounting users call me to tell me that there are strange transactions that they did not book of the type “Settlement” on the vendor or customer transactions:

They are automatically created by the system in different situations including:
  • Currency revaluations;
  • Settlement of open invoices and payments having different Financial Dimensions;
  • Settlement of open invoices posted with a certain customer/vendor group and payments made after the change of the customer/vendor group.
In all such occurrences the system creates additional “Settlement” transactions, in this post I will talk about why they are thereand what would be the impact of not having them.

Example of a settlement transaction
Let’s book a simple Free text invoice with the following Financial dimensions on the header:
  • BusinessUnit: 001
  • CostCenter: 007;
  • Department: 022

These dimensions on the header will result in the booking on the Customer balance in the invoice voucher:

Then we book a payment against this invoice, settling it. The Financial dimensions on the payment journal are taken from the vendor master and are these:
  • BusinessUnit: 002
  • CostCenter: 007
  • Department: 022
  
And this is the payment voucher with the dimensions of the Customer balance:

The invoice and the payment differ for the value on the BusinessUnit that is 001 on the Invoice and 002 on the Payment.
We can already notice that there is a button “Related vouchers” active on the Payment voucher that shows the following voucher, the settlement voucher:


Why Dynamics does these additional bookings?
Let’s assume that on the Trial balance we have just the transactions posted by this vouchers posted before:
  • SAL26000000011: the invoice  voucher
  • CPAY000000006: the payment voucher
  • ITCO-80000002: The settlement voucher



These are the Voucher transactions resulting from the three postings:
VoucherMainAccountBusiness UnitCost CenterDepartmentAccount nameCurrencyAmountPosting type
CPAY000000006110110002022 Bank Account - USDEUR1.220,00Bank
CPAY000000006130100002022 Accounts Receivable - DomesticEUR-1.220,00Customer balance
ITCO-80000002130100001022 Accounts Receivable - DomesticEUR-1.220,00Customer settlement
ITCO-80000002130100002022 Accounts Receivable - DomesticEUR1.220,00Customer settlement
SAL26000000011222200001022 VAT Tax PayableEUR-220,00Sales Tax
SAL26000000011130100001022 Accounts Receivable - DomesticEUR1.220,00Customer balance
SAL26000000011401200001022007Service RevenuesEUR-1.000,00Customer revenue

Now will test the figures on our small Trial Balance with and without the settlement voucher in various situations:
  1. Trial balance run at the main account level with the Settlement voucher
If this was our Trial balance launched for just the main account, it would be like this:
MainAccountAccount nameSum of Amount
110110Bank Account - USD1.220,00
130100Accounts Receivable - Domestic0,00
222200VAT Tax Payable-220,00
401200Service Revenues-1.000,00

  1. Trial balance run at the main account level without the Settlement voucher
If we run it excluding the settlement transactions (voucher ITCO-80000002)? It will be the same:
MainAccountAccount nameSum of Amount
110110Bank Account - USD1.220,00
130100Accounts Receivable - Domestic0,00
222200VAT Tax Payable-220,00
401200Service Revenues-1.000,00

  1. Trial balance run including all dimensions with the Settlement voucher
In this case we will have that the Accounts receivable goes to zero, as we expect because the Accounts receivable gets closed by the settlement:
MainAccountAccount nameBusiness UnitCost CenterDepartmentSum of Amount
110110Bank Account - USD002022(blank)1.220,00
130100Accounts Receivable - Domestic001022(blank)0,00
130100Accounts Receivable - Domestic002022(blank)0,00
222200VAT Tax Payable001022(blank)-220,00
401200Service Revenues001022007-1.000,00

  1. Trial balance run including all dimensions without the Settlement voucher
By excluding the settlement voucher we will be running into trouble, because we will be having that on account 130100 there are open balances for Business Unit 001 and 002 even if the invoice and the payment are closed:
MainAccountAccount nameBusiness UnitCost CenterDepartmentSum of Amount
110110Bank Account - USD002022(blank)1.220,00
130100Accounts Receivable - Domestic001022(blank)1.220,00
130100Accounts Receivable - Domestic002022(blank)-1.220,00
222200VAT Tax Payable001022(blank)-220,00
401200Service Revenues001022007-1.000,00

In fact is missing the voucher that closes both transactions:
 
VoucherMainAccountBusiness UnitCost CenterDepartmentAccount nameCurrencyAmountPosting type
CPAY000000006110110002022 Bank Account - USDEUR1.220,00Bank
CPAY000000006130100002022 Accounts Receivable - DomesticEUR-1.220,00Customer balance
ITCO-80000002130100001022 Accounts Receivable - DomesticEUR-1.220,00Customer settlement
ITCO-80000002130100002022 Accounts Receivable - DomesticEUR1.220,00Customer settlement
SAL26000000011222200001022 VAT Tax PayableEUR-220,00Sales Tax
SAL26000000011130100001022 Accounts Receivable - DomesticEUR1.220,00Customer balance
SAL26000000011401200001022007Service RevenuesEUR-1.000,00Customer revenue

In a nutshell: without the settlement transactions we would be having discrepancies at the Financial Dimension level.
Final note: in the (rare) case in which the Accounts receivable/Payable posting profile account changes between the posting of the invoice and the posting of the payment of the invoice, Dynamics will do adjustments also at the Main account level to adjust for the fact that the invoice was posted on one account and the payment on the other.  

That’s all folks, see you next time!

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