Author Archives: Ludwig Reinhard

Cost accounting (6)

13 Sunday Aug 2017

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This and the following posts will focus on the second pillar of a classical cost accounting system – the cost center accounting pillar. As mentioned in the previous posts on cost accounting, the cost center accounting system associates costs to its origin. The next figure illustrates this association for different kinds of costs (illustrated in the first column) with its origin cost centers.

Because the first three cost centers no. 110, 120 and 130 support all the other operative cost centers, the costs that have been accumulated on the supporting cost centers shall be allocated to the other ‘direct’ or ‘operative’ cost centers.

Within this post, the total direct costs of the supporting cost centers will be allocated to the operating cost centers (no. 210-250) based on the amounts that have been posted on other ledger accounts (cost elements). The next posts will show other, alternative allocation methods and provide a comparison with the allocations that will be generated in the following.

 

Before costs can be allocated, the different cost elements need to be specified first in the cost element dimension form. In the example used, the primary cost elements were transferred from the General Ledger’s Chart of Accounts (CoA) whereas the secondary cost elements (‘Allocation 110 Supplies’, ‘Allocation 120 Car pool’, ‘Allocation 130 Product management’) were created manually in the cost accounting module to track cost allocations in detail.

The second required setup for running cost allocations concerns the cost objects; in the example used, the cost centers, which were also transferred from the D365 ledger modules. For details, please see the following screenprint.

Once cost elements and cost objects are defined, they can be classified in cost element and cost object dimension hierarchies. The set up of those hierarchies is illustrated in the next figures.

The next setup relates to the cost allocations that shall be executed. Those cost allocations are set up in the cost allocation policy form, which is exemplified below.

 

In the cost allocation policy form that is illustrated above, the costs of cost center ‘110 Supplies’ are allocated to the other cost centers based on the amounts that have been posted on ledger account (cost element) 851000.

Similarly, the costs of the other supporting cost centers ‘120 Car Pool’ and ‘130 Product Management’ are allocated to the other cost centers based on the amounts that have been posted with ledger account (cost element) 852000.

With the so-called spring release that became publicly available in July 2017, additional predefined allocation bases became available. The next screenprint illustrates some of those predefined allocation bases, which comprise main accounts, cost elements and statistical elements that have been imported into the cost accounting module.

To identify the cost allocations made, a cost rollup policy is set up in addition to the previously shown cost allocation policy. Cost rollup policies establish a linkage between the cost object from where the costs are allocated from and the secondary cost elements that detail the cost allocations for the various cost objects.

Cost allocation and cost rollup policies do not allocate costs without being assigned to a cost accounting ledger. For that reason, a cost accounting ledger is set up next.

Please note that the arrows shown in the cost allocation and cost rollup policy forms identify the button through which the association between the policies and the cost accounting ledgers is made.

Similar to what has been shown in prior posts on the cost accounting module, the cost accounting ledger needs a linkage to the cost elements, the cost element hierarchy, cost objects and the cost object hierarchy, which is exemplified in the next figures.

After the cost accounting ledger is setup and after the source data are processed – for details, please see the prior posts – the cost allocation can be executed through the overhead calculation button.

For the illustration of the cost allocations in the cost controlling workspace, the workspace needs to be setup first. This set up is illustrated below.

 The only major difference in the setup of the cost controlling workspace to what has been shown in the prior posts is that a linkage to the overhead calculation version needs to be made. This is indicated by the arrow in the previous screen.

 

Once also this is made, the cost object data can be analyzed in the cost controlling workspace. The next screenprints document the obtained results.

For a better overview, the allocated costs data are summarized and highlighted in the following Excel document.

In the next post, we will take a look at an alternative cost allocation methodology that allocates the costs of the supporting cost centers based on the total direct costs recorded on the other cost centers. Till then.

Cost accounting (5)

05 Saturday Aug 2017

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Within this post, we will focus on another two cost accounting topics that are related to the first pillar of a classical cost accounting module before we move on to the second pillar and take a deeper look at the cost center accounting features.

 

Part 1: Corrections
Sometimes it is necessary to make corrections to the data recorded (transferred) to the cost accounting module. As an example, let’s assume that $150 taxi costs that are posted in combination with the admin cost center no. 400 do actually belong to the sales cost center no. 500.

In the ‚old’ cost accounting module, cost accountants could simply correct such errors by making use of cost accounting journals that did not have an influence on the financial accounting system. In other words, adjustments that were made in the cost accounting module had no effect on the other finance modules.

With the new cost accounting module, this option is no longer available and necessary changes to transferred accounting data must either be made by importing adjustment transactions through data entities directly into the new cost accounting module or – better – by recording adjustments in the originating finance modules.

 

Part 2: Combine data from different companies
The previous (old) cost accounting module was limited to a single company and could not analyze data originating from different companies. This has been changed in the new cost accounting module, which allows analyzing data from multiple companies that are either setup in D365 or that use other (external) ERP systems.

Within the following, we will have a look at a simplified example where financial data from two companies (DEMF & USMF) will be analyzed together. To understand and follow the example, please note that the two companies use different Chart of Accounts and different currencies. The financial data used for the following illustrations can be identified in the next figure.

To get the financial data analyzed together, three cost element dimensions need to be specified:

  • The first one (CA_CostElements) has already been used before and holds the main accounts/cost elements from company USMF
  • The second one (CA_CostElements2) holds the cost elements that were previously imported and that will be used for the combined analysis of the data.
  • The last cost element dimension illustrated in the previous screenprint holds the main accounts/cost elements that originate from company DEMF.

Because the second cost element dimension will be used for the combined analysis, the DEMF and USMF cost elements need to be mapped to this dimension. The next screenprint exemplifies this for the DEMF cost elements.

Once the different cost elements are mapped, a cost element dimension hierarchy needs to be setup because it is required for the configuration of the cost accounting ledger.

The cost accounting ledger refers then to this cost element dimension hierarchy and the cost control units (cost centers). As the setup of the cost control units is identical to what has been shown in the previous posts, reference is made to those previous explanations to conserve space.

The next required setup step consists of configuring the data provider for the cost accounting ledger, which is necessary for getting the cost accounting data transferred to the cost accounting ledger. Because two companies are now connected to the cost accounting ledger, two data provider need to be specified. This is illustrated in the next screenprint.

 Please note that the data providers need to be configured in a way that they refer to the cost element dimensions of the specific entity.

Once the configuration is made, the data can be imported into the cost accounting ledger as shown before. The next step is then the setup of the cost controlling workspace, which links the control unit, the cost element and the cost object hierarchies.

After the cost controlling workspace is setup, the combined business data can be analyzed, as exemplified below.

 Please note that an exchange rate of 1 EUR = 2 USD has been used for the currency conversion of the EUR data in order to consolidate them into the combined USD data that are illustrated in the cost controlling workspace.

 

This post ends the series on the first pillar of a classical cost accounting system – the classification of a company’s costs. The previous posts showed that also the new cost accounting module allows classifying costs according to their behavior (fixed vs. variable), their nature (primary vs. secondary) and by functions (admin, travel, etc.). Compared to the previous cost accounting module, users have more options in regards to the data that can be analyzed in the new cost accounting module (cross-company & integration of posting layers). Those enhanced options come, however at the price that additional / more complex setups are required.

The following posts will investigate how cost center accounting functionalities are supported in the new cost accounting module. Till then.

Cost accounting (4)

01 Tuesday Aug 2017

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This post builds upon the previous one and shows how one can separate fixed and variable cost elements. To split the total costs of a cost element into a fixed and variable part, a cost behavior policy for the cost elements used in the cost accounting ledger needs to be specified.

Within the cost behavior policy form, combinations of cost elements and cost objects can be used for specifying fixed and variable cost parts at different levels. The following screenprint exemplifies this.

Once the fixed and variable cost parts are specified, the cost behavior policy needs to be linked to the cost control units of the cost accounting ledger, which can be achieved by selecting the ‘policy assignment for cost control unit’ button shown in the previous screenprint.

Thereafter, an overhead calculation can be executed in the cost accounting ledger to get the total costs split up into a fixed and variable part.

The last step required for illustrating the fixed and variable cost parts in the cost controlling workspace is the assignment of the actual overhead calculation version in the workspace configuration form.

Afterwards, the fixed, variable and total costs can be identified in the cost controlling workspace…

… and the cost element details form.

Cost accounting (3)

24 Monday Jul 2017

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The previous post focused on classifying a company’s costs into primary and secondary cost elements. Within this post, we will continue on this classification topic and demonstrate how cost elements can be used for analyzing cost accounting data in the D365 web client.

To realize this, a so-called cost accounting ledger needs to be set up, which defines processes and rules for measuring costs on cost objects. The next screenprint shows the cost accounting ledger used for the following illustrations.

As one can identify from above, two things need to be defined for the illustration of the demo data shown in the previous post. First, a cost element hierarchy that holds the cost elements that will be analyzed.

And second, the cost control unit, which holds the cost objects, such as for example the cost centers, departments, etc.

 More than a single control unit can be setup in this form and be linked to a cost accounting ledger.

After the cost elements and cost objects are defined, the data for the cost accounting ledger can be processed; that is, transferred from the general ledger into the cost accounting module. To process those data, the data source / data provider needs to be configured first. This configuration is made as illustrated in the following two screenprints.

 Data from multiple posting layers can be imported at the same time. This is something that has not been available in the ‘old’ cost accounting module.

Once the data source / data provider is configured, the GL data can be processed (transferred), as illustrated in the following screenprint.

The outcome of processing the data can be identified through the following cost element journal entries form.

To visualize the processed data in the cost controlling workspace, the workspace needs to be configured first by establishing a reference to (1) the cost control unit, (2) the cost elements and (3) the cost object.

With this workspace configuration in place, the following cost accounting data can be identified; in the screenshot below for the cost object ‘cost center 500 sales’.

 Please note that the cost controlling workspace does not differentiate between cost and revenues and simply adds up both elements. Moreover, the cost controlling form in the web client allows visualizing only one cost object at a time. A side-by-side comparison of the different cost objects – as illustrated in the sample data shown in the previous post – cannot be realized. This is because the cost controlling workspace is designed for the use of cost object managers and its access can be restricted by security rights. As a result, users have to apply Power-BI tools if they need a side-by-side comparison of the different cost objects analyzed.

 Details of the data illustrated in the cost controlling form can be viewed through the view details button/form, as exemplified in the next screenprint. In other words, even if multiple main accounts are summarized into a single cost element (‘travel costs’), details of the individual account data are still available.

In the next post we will take a look at how the total costs shown in the cost controlling workspace can be separated into a fixed and variable part. Till then.

Cost accounting (2)

17 Monday Jul 2017

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Within this second part, we will take a deeper look at the first pillar of a classical cost accounting system and investigate how a company’s costs can be classified for cost accounting purposes.

This investigation will be done based on the following sample data that have been recorded through a GL journal with the main accounts and financial cost center dimensions illustrated in the next figure.

To get those costs classified in the cost accounting module, a cost element dimension (that holds all cost elements required for the subsequent analysis) needs to be setup first.

Setting up a cost element dimension necessitates that a linkage to an existing Chart of Accounts (COA) is made. In addition, one has to define the main accounts that need to be imported into the cost accounting module. This definition can either be made by referring to main account types or account ranges, as exemplified in the next screenprint.

Once the cost element dimension is setup and defined, the only thing missing is starting the ‘import dimension members’ job through the respective button. After the import job is finished, the different cost elements that were imported from the general ledger (GL) module are classified as primary cost elements and can be identified in the ‘view dimension members’ form. The next screenprint illustrates this.

 Balance Sheet (BS) and Income Statement (IS) accounts can be imported into the new cost accounting module. Importing BS accounts was not possible in the ‘old’ cost accounting module without making a system modification.

 If one imported too many or wrong main accounts as cost elements, the fastest and easiest way to get this corrected is deleting the cost element dimension because subsequent imports won’t delete elements that have already been imported into the cost accounting module.

 

After the primary cost elements have been created through an import from GL, secondary cost elements can manually be created in the cost elements member form by selecting the new button. The next screenprint shows an example.

 Secondary cost elements are used in the cost accounting module only and are used for cost allocations and overhead calculations. Their usage will be shown in subsequent posts.

An investigation of the screenprint above shows that a 1:1 relationship between the company’s main accounts and the cost accounting elements exists. Sometimes cost accountants do not require this level of detail but would rather summarize different main accounts into a single cost element. Let’s assume that the cost controller is not interested in the details of the travel related expense accounts but wants to summarize all of them – in the example main accounts 6401 to 6405 – into a single cost element denominated ‘travel costs’.

Summarizing different cost element dimensions can be realized by preparing the required cost elements in Excel, uploading and mapping them. The next screenprints demonstrate how such an import works.

Step 1: Export the ‘imported cost element dimension’ data entity through the data management

Step 2: Prepare the cost elements in the exported Excel template

Step 3: Upload the cost elements through the data management import form

Step 4: Create a new cost element dimension and select the ‚imported dimension members’ data connector

Step 5: Configure the dimension member provider

 The data connector is the source identifier that has been specified in the Excel template. For details, please see step 2 further above.

Step 6: Select ‘import dimension members’
The outcome of this import can be controlled through the ‘view dimension members’ form and is illustrated in the next screenprint.

Step 7: Map cost elements
The last step required consists of mapping the imported cost elements with the GL main accounts that have previously been imported into a different cost element dimension. The next screenprint shows how the different cost elements/main accounts are mapped for the travel cost accounts.

 The ability to map cost elements from different cost element dimensions allows incorporating cross-company accounting scenarios in the cost accounting module; something that has not been possible in the ‘old’ cost accounting module. The next illustration shows a scenario where business data from three different companies (US, FR & DE) that all use their own COA can be analyzed together through the definition and mapping of cost accounting elements.

Cost accounting (1)

14 Friday Jul 2017

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Recently, a new cost accounting module has been released for Dynamics 365 for Finance & Operations Enterprise Edition (In the following short ‘D365’). Previous Dynamics AX versions also had a cost accounting module integrated. The previous module and its functionalities have, however, been discarded and not a single line of code has been reused for the new cost accounting module.

Before jumping into the new cost accounting module functionalities, let’s start with some general notes on the cost accounting theory in order to prepare the playground for the subsequent setup and analysis of the new cost accounting module functionalities.

If you search for the term cost accounting, you will easily find numerous definitions that describe what cost accounting is all about. Rather than trying to create an own mediocre definition here, let’s rather focus on the different pillars of a classical cost accounting system, which are illustrated in the next drawing.

 

The first pillar of a classical cost accounting system is made up by the so-called cost type accounting system, which classifies a company’s costs for example by the nature of their traceability (direct vs. indirect costs), by functions (production, administration, selling, etc.), by behavior (fixed, variable, semi-variable), etc.

The second pillar of a classical cost accounting system consists of the cost center accounting system, which is responsible for associating the classified costs to its origin, such as for example a cost center.

The cost object accounting system – sometimes also referred to as product cost accounting system – establishes the third pillar of a classical cost accounting system. This last pillar can be differentiated into a unit or item based and a time based cost object accounting system.

 

The following figure summarizes the different pillars of a classical cost accounting system and shows its association to the financial accounting system.

 Please note that the financial accounting system (that is governed by GAAP) is often referred to as external accounting system while the cost accounting system is regularly referred to as internal accounting system.

 

If you take a look at the figure above, you will find that several cost accounting elements are already integrated in other D365 modules. As an example, cost allocations can be executed through allocation rules in the general ledger module, item costs can be calculated through the costing sheet and the use of financial dimensions and main account allocation terms allows de facto the implementation of a direct costing approach.

Provided that those features are already available in D365, the question for the necessity of a separate cost accounting module arises. This question will be answered in the following posts, which describe the different cost accounting module functionalities and compares them with the already available features in the other D365 modules.

New book release Dynamics 365 Project Accounting & Controlling

07 Friday Jul 2017

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Just released the 2nd part of the project accounting and controlling book, which is available through the Create Space Onlineshop and Amazon.

After receiving some feedback about the price policy on the first book, I decided to offer both books for the same (less expensive) price. Hope that is in the interest of all D365/AX community members and helps to implement the project module successfully.

 

Vendor invoice recording (Part 9)

01 Saturday Jul 2017

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The purchase requisition and invoice workflows used in the previous post assigned the approval tasks to the cost center manager of the person that requested the goods or services irrespective of the singing limit of that manager.

To incorporate the signing limits into the purchase requisition workflow approval step, I tried to modify this step in a way that it refers to a hierarchy. Unfortunately, this hierarchy selection did not allow me starting the workflow from the requester, as illustrated in the next screen print.

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Applied to the example that was used in the previous post, the available ‘start from’ selection options do not allow assigning the approval task to Susan’s cost center manager unless Susan would submit the purchase requisition herself.

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Setup Modification A:
To get this issue resolved, the purchase requisition workflow has been setup as a purchase requisition line review workflow, because this line-workflow type allows to be started from the requester. For details, please see the next screen prints.

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notesign In prior versions, the standard purchase requisition workflow could be started from the requester. This option has, however, been removed and as a result, a purchase requisition line-item workflow needs to be used to achieve the same.

To get the line-item workflow running, it must be incorporated into the ordinary purchase requisition workflow. This is achieved through the following setup.

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Example:
In the following, a purchase requisition for a training course with a total value of $10000 is submitted to the workflow. Because of the changes that have been implemented, the approval task is now assigned to the marketing executive Julia because she has a sufficiently large signing limit. For details, please have a look at the following screen prints.

205_p9_0035 205_p9_0040 205_p9_0045

 

Setup Modification B:
In line with the changes that have been made to the purchase requisition approval step, also the invoice review & approval matching step has been modified in a way that it starts from the workflow owner.

205_p9_0060

notesign Similar to what has been shown in the previous posts; Phyllis the accountant has been setup as the workflow owner and has been incorporated into the position hierarchy. For that reason, the correct person that is required for approving the invoice deviations can be identified.

 

Example:
If we continue the example and record a vendor invoice for $10900, that is an invoice with a price deviation of >5%, the review & approval task is directly assigned to Charlie, the president, as he has a sufficiently large signing limit.

205_p9_0070 205_p9_0075

 

 

Summary Expense Related Invoice Workflows:
This post ends the series on expense related vendor invoices. Based on what has been shown in the previous posts, it can be summarized that Dynamics AX/365 for Operations ships with a powerful and flexible workflow engine that can handle various invoice review and approval scenarios.

Setting up the different workflow steps might not always be as easy and straightforward as one can find this in specialized workflow add-on’s to Dynamics AX/365 for Operations. In addition, the previous posts showed that the pending vendor invoice form needs some modifications in order to allow users identifying the current workflow step and responsible at a glance.

Against the background of those ‘disadvantages’, the reader should be able to assess whether those enhancements can be built into Dynamics AX/365 for Operations oneself for the same or a cheaper price than a specialized invoice workflow add-on.

Vendor invoice recording (Part 8)

22 Thursday Jun 2017

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This post continues the previous one that ended with the approval of the purchase requisition.

205_p8_0003

 

Process step 4:
After the purchase requisition is approved, the requisition is converted into a purchase order, as illustrated in the next screen prints.

205_p8_0005 205_p8_0010

notesign Dynamics AX/365 for Operations includes a separate workflow for the creation of the purchase order. This workflow is not used here because the creation of purchase orders is not the major focus of this post.

 

Process step 5:
To ensure that the ordered goods or services have been received, a category policy rule for the ordered training courses has been setup, which requires a three-way match and an explicit receipt posting before the vendor invoice can be posted.

205_p8_0015

 

Process step 6:
The last process step is supported by the following invoice workflow.

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This invoice workflow starts with a verification whether matching differences exist.

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If no matching differences exist, i.e. if the purchase order, the product receipt and the vendor invoice match, the invoice is posted automatically. Otherwise, a separate invoice review by the cost center manager is required.

Please note that this additional review step refers to the vendor invoice expenditure reviewer group ‘Approver’, which assigns the workflow task to the cost center manager that was responsible for approving the purchase requisition.

205_p8_0030 205_p8_0035

notesign To avoid that small price differences require an explicit review and approval of the cost center manager, a 5% total invoice matching tolerance has been setup, in the AP module parameters form.

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When setting up this price tolerance, it is important that the ‘post invoice with discrepancies’ parameter is set to ‘allow with warning’. If this is not the case, the cost center manager does not only need to review and approve the workflow step but also needs to manually set the following matching parameter in the invoice matching details form.

205_p8_0041

Because the cost center manager already approves the variance through the workflow, an additional requirement of setting the matching parameter in the invoice matching details form is a duplicate and consequently unnecessary step.

 

Example:
In the example illustrated here, a vendor invoice with a price variance of 8% is recorded.

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As a result, the workflow does not directly post the invoice but rather assigns it to the cost center manager Kevin Cook for review/approval.

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Provided that the ‘post invoices with tolerances’ parameter is set to ‘allow with warning’, the invoice is automatically posted, once Kevin completes his review step.

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Posting the invoice ends the invoice workflow and this post. Within the next post, we will have a look at how signing limits can be incorporated into the different workflows used. Till then.

 

Vendor invoice recording (Part 7)

17 Saturday Jun 2017

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A major problem with the invoice process shown in the previous post is that the materials were ordered by Email without a formal process behind. If the manager does not approve the vendor invoice and the purchase of the goods or services, it is often too late to stop or revoke the delivery and the whole purchase.

To avoid such unpleasant situations, the approval steps can already be executed before the goods or services are ordered from the vendor. The Dynamics AX/365 for Operations instrument that supports those early approvals are purchase requisitions, which allow users specifying what they require before things are ordered from vendors. The next screen print summarizes the different steps and responsible persons involved in the example that will be illustrated in the following.

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The sample process starts with the preparation of the purchase requisition by Nicole Holiday.

Thereafter, a group of purchasing agents has been defined that is responsible for reviewing the purchase requisition to ensure that the requisitions are complete and do not include errors.

The next process step consists of an approval of the manager of the cost center for which the materials are ordered.

Once the cost center manager approved the requisition, the goods can be ordered through the creation of a purchase order.

To ensure that the goods or services arrived, a formal receipt process step has been built in.

The process finally ends with the recording of the vendor invoice. Because of the early approvals and provided that there is no difference between the price and quantity ordered and invoiced, the vendor invoice can automatically be posted. If, on the other hand side, a price or quantity variance exists, an additional approval from the cost center manager is required.

 

Please note that the process steps illustrated above are supported by two different workflows, which can be identified from the next illustration.

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The next subchapter details the setups required for the implementation of the sample process steps / workflows. Thereafter, the whole process will be illustrated based on an example.

notesign Due to the number of steps and setups involved, only the first three steps of the sample process will be included in this post and the remaining steps will be explained in the next one.

 

Process step 1:
The first process/workflow step starts with the creation of a purchase requisition. As the purchase requisition is created manually, no specific setup is required.

 

Process step 2:
As mentioned above, the second process step consists of a review of the purchase requisition by a group of purchasing employees. This process step is incorporated in Dynamics AX/365 for Operations through the purchase requisition workflow illustrated in the next screen print.

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The first workflow step (‘Review purchase requisition’) is thereby implemented through the selection of a ‘participant’ assignment type that is linked to a specific user group. For details, please see the next screen print.

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For the sake of this example, Phyllis and Susan have been promoted to purchasing employees and connected to the user group that is responsible for reviewing the purchase requisitions.

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Process step 3:
The third process/workflow step requires the cost center managers to approve the purchase requisition.

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This workflow step is assigned to the purchase expenditure reviewer group ‘AppREQ’.

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Please note that this reviewer group refers to the cost center owners (managers) and consequently requires that a cost center financial dimension is specified with the purchase requisition.

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Example:
Based on the previously setup workflow steps and the following organizational chart, Nicole Holiday prepares a purchase requisition for a software training on behalf of her colleague Susan Burk.

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Because Susan’s employee record is linked to the cost center she works for, the required cost center information is automatically transferred to the purchase requisition. Please note that this transfer is important for the subsequent identification of the approver of the purchase requisition. This is exemplified in the next screen print.

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After submitting the purchase requisition, the first review task is assigned to all users that are included in the purchase requisition reviewer group.

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If Phyllis decides to take ownership of the task…

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… she has to review the requisition and verify that all necessary information have been provided.

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Once the review step is completed, the next workflow step is assigned to Kevin Cook, the cost center manager of Susan.

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notesign Please note that the cost center that is assigned to the requester and not to the one of the preparer of the purchase requisition determines the cost center manager that is responsible for approving the purchase requisition.

 

After the cost center manager approves the requisition, …205_p7_0075

… its status changes to approved, which ends the purchase requisition workflow and allows the creation of a purchase order.

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This workflow step concludes this post. The remaining workflow steps are illustrated in the next post. Till then.