Microsoft Dynamics 365 Accrual Schemes

Hi Folks,

I hope you all are doing great. The summer is getting hot and trying it's best to break all the records. 

I am writing this blog post for the audience who are looking for a very comprehensive solution for Accruals setup and configurations. Today I would like to cover the Purchase Accrual Schemes.

Firstly we need to understand what is Accrual Accounting?

Accrual Accounting: Accounting method that records revenues and expenses when they are incurred, regardless of when cash is exchanged. The term "accrual" refers to any individual entry recording revenue or expense in the absence of a cash transaction 

When we use accruals? 

Accruals are used in accrual accounting to track revenue that is recognized in the period that it's earned in, not when payment is received, and to track expenses (costs) that are recognized when they occur, not when payment is made.

Prerequisite Setup

Path: GL> Journal setup> Accrual Schemes

On the Accrual scheme page, you specify the debit and the credit accounts that will be used when the accrual scheme is applied.

1. Debit – The main account that you define will replace the debit main account on the journal voucher line. This account will also be used for the reversal of the deferral, based on the ledger accrual transactions. 
   I will configure the "Prepaid expense" account in this field. 
2. Credit – the main account that you define will replace the credit main account on the journal voucher line. This account will also be used for the reversal of the deferral, based on the ledger accrual transactions.
   I will configure the "Travel expense" account in this field. 
3. Voucher: I will use "New voucher for each transaction" 
4. Number sequence code: AccEXAPIn
5. Accrual basis: calendar
6. Period frequency: Monthly
7. Number of occurrences: 12
8. Post transactions: Month (Beginning and Even) 
   
   Below is the ScreenShot for the Accrual Schemes setup. 

Here is the step by step solution for Purchase Accruals. 

Step by Step

1. Perform prerequisite setups (Create Accrual Schemes in GL module) - This part we already completed. 
2. Create a vendor invoice (Use vendor invoice journal) 
   1. Go to functions and generate the accruals
   2. Post the vendor invoice
3. Vendor settlement (Use vendor payment journal)

Create a Vendor Invoice 

Create the vendor invoice with the following details

• Debit: Travel Expense
• Credit: Vendor 

Make sure to generate the ledger accruals in the vendor invoice journal. In the next screen select your accrual schema which has been set up in the GL module and press ok. 

Once the Ledger accruals have been generated, post vendor invoice and check the voucher 

• Debit: Prepaid Expense (System has extracted this account form GL> Accruals Schemes) 
• Credit: Accounts payable 

Check the transactions in the voucher, we note that the system has generated and posted the accrual transactions for prepaid expense account for the next 12 months. 

Generate and Post the Vendor Payments

We will use the vendor payment journal to settle the purchase invoice. 

• Debit: Vendor
• Credit: Bank

Key Notes and Conclusion

• In order to run the purchase accrual cycle, we need to set up the Accrual Scheme. 
• Whatever the account we will set up in the accrual schema in the "Accrual Debit", same will be picked by the system at the time of posting the Vendor Invoice journal.  
• Use the Vendor invoice journal to generate and post the vendor invoice. Make sure to use the ledger accrual functionality before posting the invoice.
• Once the invoice posted, the system will post the prepaid expense entry for the next 12 months. 
• Perform the vendor settlement by using the Vendor payment journal.

If you have feedback feel free to share.

Cheers (Y) 

Ali Danish

Microsoft Dynamics 365 Finance and Operations Consultant