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After illustrating you the problems of the standard Dynamics AX purchase order prepayment functionality in a VAT company environment in the previous post, I want show you an alternative approach for recording purchase order related prepayments in Dynamics AX.

For the implementation of this approach two service items need to be setup that are used for recording the prepayments. Example:
The first service item (“ANZ”) is setup with the on account (“OA”) item sales tax group illustrated in the previous post and is used for recording the prepayment vendor invoice.
The second service item (“ANZVERR”) is setup with the ordinary (“FULL”) item sales tax group and is used in the final vendor invoice to deduct the prepayments made.
The ledger posting for those service items are posted on the same vendor prepayment balance sheet account (132200) used before but they are setup in a different section of the inventory posting form. For details, please see the next screenshot.


With this alternative setup in place, the vendor prepayment process can be performed through the execution of the following four steps.

Step 1: Setup purchase order & record prepayment
The first step required in the process is setting up the the purchase order. Different from the previous posts, the prepayment is now recorded through two additional purchase order lines. The first additional line holds the first service item (“ANZ”) and is setup with the prepayment amount of 5000 EUR, while the second additional purchase order line holds the second service item (“ANZVERR”) and is setup with an equivalent but negative amount of -5000 EUR.

Step 2: Post prepayment vendor invoice
The next step in the prepayment process is posting the prepayment invoice. This time the prepayment invoice is posted by using the ordinary purchase invoice form and selecting the first additional purchase order line only. Please see the next screenshots.
EN_62_0030 EN_62_0035
The outcome of the prepayment invoice posting is a voucher that posts the non-deductible VAT on ledger account 130850. This transaction is identical to the one shown in the previous post on vendor prepayments.

Step 3: Pay prepayment vendor invoice
Also the third process step – the payment of the vendor invoice – is identical to the one illustrated in the previous post and results in the following vouchers.
As before, when recording the payment of the prepayment invoice, a transfer of the tax amount from the non-deductible VAT account (130850) to the ordinary (deductible) VAT account (130800) can be identified.

Step 4: Post final vendor invoice
The last step in the prepayment process consists of deducting the prepayment made when posting the final vendor invoice. This time, the deduction is made by including the second service item into the vendor invoice as illustrated in the next screen-print.
As a result, Dynamics AX generates the following voucher.
The next illustration summarizes all transactions posted by using this second approach.
What you can identify from the posting summary is that the non-deductible VAT account (130850) does now balance and that the VAT does now get recorded and deducted at the right time.


The alternative approach for recording vendor prepayments illustrated in this post shows that using service (“dummy”) items can help overcoming the problems of the standard prepayment functionality and results in correct ledger and tax postings.

Despite those advantages I would like to emphasize that this alternative approach comes with a higher risk of errors, as no automatic features exist that ensure e.g. that prepayments can only be deducted once the payment is made.

Please also join me in the next post that will show you another approach for recording vendor prepayments.