Cost accounting (2)


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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)


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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

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)


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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.


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.



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.



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.

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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.


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.


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.

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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)


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



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

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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.



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


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


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.

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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.


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.


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.


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


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.


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.


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)


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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.


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.


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.


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.


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.



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


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


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.



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.



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.


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


If Phyllis decides to take ownership of the task…


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


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


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.


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


Vendor invoice recording (Part 6)


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This post extends the previous one in a way that a project related expense invoice is recorded, which requires an explicit review of the project manager. To realize this, an additional project manager review step (PM review) is included in the invoice workflow. For details, please see the next illustration.


Please note that the expenditure reviewer group ‘approver’ has been assigned to the PM review step…


… which refers to the project manager as the one that has to review the invoice.


To ensure that the workflow can also handle ordinary vendor invoices, the PM review workflow step is setup with an automatic action that completes the PM review step if no project number is provided. In other words, the PM review step is skipped for ordinary invoices.


For the illustration of the next example, it is important to note that Susan Burk has been assigned as project manager for the project that is addressed in the vendor invoice.



With the project number specified in the invoice, the workflow is consequently assigned to the project manager (Susan Burk) after the orderer (Nicole holiday) has reviewed the invoice in a first step.


If a project number is not specified, the additional review step is skipped and identical to what has been shown in the previous post.


This post ends the section on manually entered expense invoices that need to be reviewed and approved by two or more people.

At this point it can preliminary summarized that the standard Dynamics AX/365 for Operations workflow functionalities appear able to handle a wide variety of expense invoice scenarios. From the author’s perspective, the only thing missing is an overview form that provides more information about the status, the current assignee, etc. of a workflow. That is mainly because the standard workflow history form does – from a finance and accounting perspective – not provide users with sufficient information that can be accessed at a glance.

The next posts will continue this series by showing how to integrate purchase requisitions for expense related invoices, which is also a common scenario in many companies. Till then.

Vendor invoice recording (Part 5)


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This post builds upon the previous one in a way that Michael Redmond, the account manager, now orders the marketing materials and that the invoice needs to be approved by his line manager Kevin Cook, as exemplified in the following organizational chart.


To realize this, another position hierarchy (LRE Signing 2) has been specified, which includes Kevin Cook as one of the responsible approvers.


This newly setup position hierarchy is then linked to a newly created invoice workflow…


… that is setup in the very same way as the previously used one except for the activation of the workflow, which is based on the condition that employee 000050 (Michael Redmond) is entered in the financial dimension worker field.


After making those modifications, two invoices are recorded. The first one that has Nicole Holiday specified in the financial dimension worker field and a second one that has Martin Redmond specified.

In line with the setup of the position hierarchies and the workers assigned, the correct line managers are always identified as the ones that need to approve those invoices. For details, please have a look at the following screen prints.

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From what has been shown in this and the previous post, it can be summarized that the standard application can handle even complex multi-branch signing limit structures even though this requires the setup of separate position hierarchies and invoice workflows.

Another issue that has not been discussed so far is the fact that typically numerous accountants record and initiate the invoice workflow. This results in different workflow originators that are not incorporated into the position hierarchy shown above. To avoid that one has to setup numerous position hierarchies and invoice workflows, one single accountant – in the example Phyllis – can be setup in the position hierarchies. If the very same person is specified as the workflow owner…


…from which the workflow starts, this issue can be overcome.


The next post continues this one by investigating how project related invoices can be incorporated into invoice workflows that make use of signing limits. Till then.

Vendor invoice recording (Part 4)


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In the previous posts, the responsible for approving the vendor invoice was identified by the approver expenditure reviewer group, which was specified in the approval workflow step. For details, please see the next screen-print.


While the previously used setup allows the identification of a single invoice approver, it does not help much in companies that make use of hierarchical signing limits.

How hierarchical signing limits can be incorporated into the invoice workflow will consequently be investigated in this post.

The next screen prints show the changes that have been made to the workflow setup in order to get the hierarchical signing limits incorporated.


For that purpose, the second workflow step (singing limit based approval) has been changed and does no longer refer to the assignment type participant but rather to the assignment type hierarchy, as exemplified in the next illustration.


A major issue in regards to the selection of a hierarchical assignment is that the hierarchy can either start from the workflow owner – which refers to a ‘static’ user– or to the workflow originator.


Provided that an accountant – who is not included in the managerial hierarchy of the persons involved in the review and approval process – initiates the workflow, i.e. acts as workflow originator, the line manager of the accountant and not the manager of the orderer would get the approval workflow step assigned. To avoid such wrong assignments, a new position hierarchy (LRE signing) is setup, which starts with the accountant (Phyllis Harris) that records the invoice in Dynamics AX/365 for Operations. The following hierarchical levels are determined by the operative management (Benjamin Martin), the executives (Julia Funderburk) and finally the president of the unit (Charlie Carson). For details, please see the next screen print.


This position hierarchy needs then to be associated with the workflow through the associate hierarchy button shown in the next illustration.


Once this is done, the condition for identifying the correct person to approve the invoice can be specified.


The next setup required consists of specifying the signing rules for the different positions respectively levels. The rules used for the following examples are shown in the next figure.


With the modified workflow and the signing limits in place, an invoice for a total of $47500 is recorded in the pending vendor invoice form by Phyllis, the accountant.


To clearly differentiate the workflow from what has been shown in the previous posts, only the orderer (Nicole Holiday) is entered in the financial dimension worker field. A cost center has, however, not been specified.


Irrespective of whether and which cost center is entered, Dynamics AX/365 for Operations finds the correct approver by successively working through the signing limits that have been setup. The next screen print shows the users that are addressed by the workflow for the $47500 invoice.


As one can identify from the previous illustration, Nicole Holiday is the first user addressed by the workflow in order to review the vendor invoice.

Thereafter, Benjamin Martin, Julia Funderburk and Charlie Carson need to approve the invoice before it can be posted. Even though Benjamin Martin and Julia Funderburk do not have a sufficiently large signing limit, they still need to approve the invoice because of the workflow setup.

warningsignganzklein The successive assignment of the invoice approval can be cut short by defining that only the last user retrieved, that is the one with a sufficiently high signing limit, shall get the task assigned. The next screenshot exemplifies this.


This slight modification in the workflow setup results in a situation where Benjamin Martin and Julia Funderburk are skipped from the approval task for the $47500 invoice, which is directly assigned to the person with the appropriate signing limit (Charlie Carson).


Now let’s modify the example in a way that the materials are ordered by Michael Redmond and need to be approved by his line manger (Kevin Cook).


For that reason, another vendor invoice, this time for $2000 is entered in the vendor invoice workbench. Different from what has been shown before, this time, Michael Redmond – the orderer – is entered in the worker financial dimension field.


After Michael Redmond reviewed the invoice, the invoice approval is assigned to Benjamin Martin and not Kevin Cook, which can be identified from the next screen print.


The underlying reason for this outcome is the position hierarchy that has been assigned to the workflow and which does not include Kevin Cook. For details, see further above.

At this point, one might think to simply add Kevin Cook in the signing position hierarchy. The major problem with this approach is that Dynamics AX/365 for Operations currently only allows a single relationship between the different positions included in the hierarchy. In other words, position hierarchies that include more than a single branch, such as for Kevin Cook (the sales manager) and Benjamin Martin, (the marketing manager) that both report to Julia Funderburk, (the marketing executive), require some additional setups, which will be explained in the next post.

Vendor invoice recording (Part 3)


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This post extends the previous one in a way that this time a project related expense invoice is recorded and posted. The major difference to the example shown in the previous post is related to the expenditure reviewer setup that needs to be made in a separate project distribution tab, which is illustrated in the next screen print.


Please note that the setup of the ‘orderer’ expenditure reviewer group is made in the same way that has been shown for ordinary expense related invoices in the organization distributions tab.

The setup of the ‘approver’ expenditure group differs from what has been shown in the previous post because the project manager is now defined as the responsible person for approving the vendor invoice. For details, please see the following screen print.


Please note that the sample invoice recorded below is for project no. 000188, which has Kevin Cook assigned as the project manager.


Also note that Kevin Cook is not a line level manager of Nicole Holiday who once again ordered the goods. This can be identified from the next organizational chart.


Against the background of all this information, another expense invoice for advertising materials is recorded in the pending vendor invoice form.


This time, with a project is specified in the project invoice line details tab.


The financial dimensions invoice line tab is filled with the same financial dimension values that have been used in the prior post. That is, Nicole Holiday – the worker who ordered the goods – is recorded in the financial worker dimension field and cost center 008 – that has Benjamin Martin assigned as the cost center owner – is recorded in the financial cost center dimension field.


Because of the project relationship, the respective project manager (Kevin Cook) and not the cost center owner is identified as the one who has to approve the vendor invoice before it can be posted. The next screen print illustrates this.


As the remaining process steps are identical to what has been shown in the previous post, they are skipped here for reasons of brevity.

The next post will build upon this one and illustrate how different signing limits can be incorporated into the vendor invoice workflow. Till then.