Accrual Scheme (Prepaid Schedule) in Microsoft Dynamics 365 Finance and Supply Chain Management – Hidden Gem

Hope Everyone is doing great. Please stay safe & healthy.

In today’s blog we will talk about “accrual scheme” feature available in Dynamics 365(Also available in AX 2012) which most of the companies does not explore though they have the requirement for the same. So, let’s explore:

Accrual Scheme Purpose: 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 on month basis we recognize the expense by reversing advance or prepaid. So, let’s understand this with one example.

Use Case: Let’s say company buys the insurance subscription of 12,000 for 12 months on “31^st May 2020” though they will record the invoice on 31^st May and pay the amount to vendor but customer can not show that as “Expense in P&L” for the month of “May 2020”. So, first it has to be recorded as “Balance sheet “item as prepaid and then every month for the duration of subscription it has to reverse the prepaid and post the “Expense” for a specific month. Here are the expected Accounting entries:

1. At the time of Invoice Booking:

Vendor Credit 12,000

                      Prepaid Insurance (Balance Sheet) Debit 12,000

2. Prepaid schedule for 12 months to recognize expenses, so next 12 months entries will be:

  Prepaid Expanse (P&L) debit

                         Prepaid Insurance (Balance Sheet) Credit

Amount every month depends on method we use even or based on number of days.

So, this use case can be solved using “Accrual Scheme” feature for Dynamics 365.

Step-1: Create Accrual Scheme

Navigate to : General Ledger > Posting > Accrual Scheme > New

Step-2: Create Vendor Invoice

Accounts Payable > Invoices > Invoice Journal > Create New Journal

Note: This can be created using General Journal as well.

Step-3: Create Line for Invoice and Click on Function

Note: In offset account select the “Actual Expense Account Only”

Step-4: Select Ledger Accrual

Step-5: View Prepaid Schedule

 Select the accrual scheme which we want to apply > Select Start date for creating prepaid schedule > Click on “Transactions To view Prepaid Schedule”

Step-6: Validate Prepaid schedule > Close

Step-7: Click Ok to apply schedule on Invoice

Step-8: Post the Journal and Validate Posted transactions

If you see we have all the entry posted as per the expectations, It has posted Complete amount in “Prepaid Account “and then on monthly basis it has calculated and posted in respective months for next 12 months.

That’s all about this blog. This feature can really make the change in your implementation. So, try to explore this and implement.

Thank you for your time!!!

I will be back next week with new blog.

Please share your feedback and also let me know if you want to pick any specific area.

Stay Safe and Healthy!!!