Ledger Allocations in Microsoft Dynamics 365 Finance and Operations: Part-1

In this blog, I am going to write about ledger allocation which can be a useful tool for “Cost/Revenue allocation” from one-dimension combination to other dimension combination.

Ledger allocation can be used for scenario where user had accounted cost in specific “Main account and Financial Dimension “combination and now want to distribute or allocate to “Other financial dimensions” based on some allocation method. Here not only you can allocate amount from one-dimension combination to other, but you can allocate “Fixed external value “to different dimension combination based on specific rule.

Most common scenario in organization can be allocating “Expenses” incurred on “non-revenue generating financial dimensions” and distributing or allocating to “revenue generating financial dimensions”

Here I am going to take following scenario:

Scenario: User has recorded all selling cost amount for October 2020 in Main account ‘601200’ and in business unit “001” , now user want to allocate this cost “Selling cost 601200” of other business units 002 and 003 with fixed percentage “40% and 60%”.

So, that means system should post following allocation entry:

             601200-002 Debit (4000)

             601200-003 Debit (6000)

                                       601200-001 Credit (10,000)

Now, lets see how we can achieve this in Dynamics 365:

Ledger allocation has two parts Setup and process.

Setup: This has three components to configure.

a. Allocation Rule

In Allocation rule we specify the identification, method of allocation, journal to be used etc….

Pre-requisites: Create a Journal Name of type “Allocation” and date interval code with “Current Month” setup.

Step-1: Create Rule

Navigate to, General Ledger > Allocations > Ledger Allocation Rule > New > Enter description and Active as yes

Step-2: Select Allocation Method and Journal Name

Dynamics supports four allocation method, from which we are going to use fixed percentage in our scenario, I will explain “Basis” method in my next blog.

• Basis – This variable method is used when the allocation depends on the actual ledger balance, based on filter criteria. For example, advertising expenses can be allocated based on each department’s sales in proportion to the total departmental sales.
• Fixed percentage and Fixed weight – For these methods, the allocation percentage or weight is defined directly for the rule. For example, advertising expenses can be allocated so that Department A receives 70 percent of the advertising expense and Department B receives 30 percent.
• Equally – This method distributes the amount equally to each defined destination. For example, if destinations are defined for Department A and Department B, advertising expenses can be allocated so that both Department A and Department B receive 50 percent of the advertising expense.

Step-3: Data Source

Select data source Ledger or fixed value, if Allocation amount must be derived from some ledger dimensions combination then select “Ledger” and if it is fixed value manually entered the select fixed value. In our scenario it is selling expense Main account so we will select “Ledger”

Step-4: Date Interval Code

This is very important to select, if we want to allocate amount on monthly basis then date interval code should be selected as “Current Month” so that system consider only current month “Closing” without considering opening balance.

Step-5: Select Offset account and dimensions

In this we have two options “User specified” and “Source”, this is the main account and financial dimension combination where “Credit” entry will be posted during allocation process.

“This component defines how main accounts and dimensions should be determined for the offset entries that balance the destination entries. User-defined options are typically used instead of accounts and dimensions that are based on the source. When Data source is set to Fixed value, Source can’t be used as an option.”

Note: If user want to keep the original amount in Main account and dimension and do not want to reverse then you can use new Main account as “Offset”, so that original dimension combination is not reversed completely.

b. Source

Source is the place where we define Main account and financial dimension combination of which “Amount” must be allocated, in our scenario we want to allocate selling expense of BU 001, so this will be source.

c. Destination

Destination is the place where we define the Main account and dimensions where the allocation amount will be posted based on defined method, here are “Debit” side of entry will be posted. In our example, we are posting in same main account selling expense but in different business units 002 and 003 based on 40 and 60 %.

Note: If require user can also post Debit in separate Main account instead using same Main account as source.

2. Allocation Process

Step-1: Check trial balance for required source

Step-2: Process Allocation Request

Navigate to, General Ledger > Allocations > Process Allocation Request > Select required parameters > Click Ok

Step-3: View and Post entries

Navigate to, General Ledger > Allocations > Allocation Journal > Lines

In this journal system ahs created entries as per our expectation.

That is it for this blog, I will write the next part of this blog where I will explain the “Allocation method- Basis “ and “How Intercompany Allocations” can be processed.

Thank You!!! Keep reading sharing with your network