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Tag Archives: Prepayments

Vendor prepayments (4)

22 Friday Jan 2016

Posted by Ludwig Reinhard in Accounts Payable

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Dynamics AX, Prepayments, Purchase Order, Tax

Within the previous posts on vendor prepayments the major focus was on tax issues and how to ensure that they are posted correctly when recording vendor prepayments.

In this post I would like to focus on the disclosure of prepayments in a company’s balance sheet and the differentiation between requested and paid prepayment amounts.

That is, at the time vendor prepayment invoices are recorded in AX they do not constitute a right/receivable against the vendor who sent the prepayment invoice, as no exchange of goods/services occurred.

The right (receivable) that your company has against the vendor arises at the time when the payment to the vendor is actually made.

For that reason, some companies prefer separating “requested vendor prepayments” – that do not establish a right against your vendor – from “realized” vendor prepayments that constitute a legal claim against your vendor, as the prepayment invoice has been paid.


Problem:
The problem with the separation of requested from actually made vendor prepayments is that Dynamics AX does not provide a functionality that automatically generates a corresponding voucher at the time the prepayment is made. The following illustration that is based on the examples used in the previous posts explains the issue.
EN_64_0005
What you can identify from the illustration above is that an additional ledger transaction that debits the vendor prepayment account and credits the requested vendor prepayment account is required at the time when the payment of the prepayment invoice is made.

As the standard Dynamics AX features do not support the required Transaction, you can either implement a system modification or use one of the following workarounds.


Workaround (1):
A first option for separating requested from made prepayments is creating a manual General Ledger entry based on an inquiry of the prepayment transactions recorded. The following example demonstrates this procedure.

Example:
For the following illustrations, three purchase orders with prepayment amounts of 5000 EUR (5950 EUR), 2000 EUR (2380 EUR) and 6000 EUR (7140 EUR) are recorded in Dynamics AX. (Note: the amounts included in brackets represent the gross prepayment amounts incl. 19% VAT).

The prepayment invoices are recorded as described in the second post on vendor prepayments by using two service items (“ANZ” and “ANZVERR”) as illustrated in the next screenshot.
EN_64_0010
Please note that the service prepayment items (“ANZ” and “ANZVERR”) are setup with their item number as financial dimension value.
EN_64_0015
Also note that the ledger setup of the first service item differs from the earlier posts and does now refer to the requested prepayment account no. 132201.
EN_64_Extra

The next screen-prints shows the prepayment invoice amounts posted together with the corresponding amounts that have been paid to the vendor.
EN_64_0020 EN_64_0030
Against the background of this summary and the transactions recorded in AX, 6000 EUR need to be transferred from the “requested prepayment” account No. 132201 to the ordinary prepayment account No. 132200. The amount that needs to be transferred can be identified from the sum of the ledger accounts 130850, 132201 and 200100 filtered by the “ANZ” item financial dimension. The next screenshot shows the necessary (manual) ledger transaction that needs to be posted.
EN_64_0040

Result:
After posting the manual prepayment transfer, the trial balance list page shows the following data:
EN_64_0045
In the previous screenshot, the lines highlighted in blue color represent the prepayment invoice payments made to the vendor (6000 EUR net + 1140 EUR VAT = 7140 EUR) that allow a VAT deduction of 1140 EUR. The lines highlighted in yellow color represent the prepayment invoices posted but not paid. For that reason, the VAT related to those invoices cannot be deducted yet.


Workaround (2):
If you do not like creating manual journal entries, you can setup an allocation rule as shown in the next screen-prints that does the calculation and posting job for you.
EN_64_0050 EN_64_0055 EN_64_0060
EN_64_0065
The outcome of the second workaround that uses the allocation rules for making the transfer postings is of course identical to the one realized via the first workaround. Yet, the second workaround allows you repeating the allocation transaction as often as required with almost no effort required. EN_64_0045

This post concludes (for now :-)) the posts on vendor prepayments. I hope you enjoyed the series and look forward to seeing you in the next posts.

Vendor prepayments (3)

17 Sunday Jan 2016

Posted by Ludwig Reinhard in Accounts Payable

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Dynamics AX, Prepayments, Purchase Order, Tax

Within this post I want to introduce you another alternative approach for recording vendor prepayments in Dynamics AX. This approach differs from the ones introduced in the earlier posts by the fact that no prepayment invoice is recorded initially but that the process starts directly with the payment of the prepayment amount requested by the vendor.

Setup
In order to make this approach work, I setup the following new vendor posting profile (“PRE2”).
EN_63_0005
What you can identify from this newly setup posting profile is that the prepayment balance sheet account (“132200”) is entered in the summary account and sales tax prepayment section.

Process
Step 1: Setup purchase order
As mentioned initially, the alternative prepayment process illustrated here does not require entering a prepayment invoice and thus starts with the setup of an ordinary purchase order and the payment of the prepayment amount to the vendor.

Step 2: Pay prepayment amount to vendor
The payment of the prepayment amount to the vendor does not differ from the payments shown in the earlier posts …
EN_63_0010
…except that the newly setup posting profile is used when the prepayment journal voucher check box is activated.
EN_63_0015
The outcome of this payment transaction is the following voucher that debits the prepayment balance sheet account no. 132200 with a total amount of 5000 EUR (5950 EUR – 950 EUR).
EN_63_0020
What you can also identify from the voucher is that only the ordinary (deductible) VAT account is used, which allows deducting this amount directly.

Step 3: Post final vendor invoice
The third and final step requires that you select the prepayment made in the open transaction form of your purchase order.
EN_63_0025
Please note that Dynamics AX indicates that the payment marked for settlement is a prepayment.
EN_63_0030
Once the open transaction is marked for settlement, the final vendor invoice can be posted.
EN_63_0035
After posting the final vendor invoice, the following vouchers result:
EN_63_0040
The first voucher shown in the upper part of the screen-print records the final vendor invoice and posts a total VAT amount of 4370 EUR. This amount is offset by the related voucher created that offsets 950 EUR VAT.

As before, the following illustration summarizes all transactions posted during the prepayment process illustrated.
EN_63_0045
What you can identify from the posting summary is that no temporary (non-deductible) VAT account is recorded. Instead, all VAT transactions are recorded directly on the ordinary (deductible) VAT account no. 130800. For that reason, also this approach ensures that the VAT is posted and deducted at the right time.

 

Summary
A major advantages of the prepayment approach demonstrated in this post is its comparative lower complexity and its conciseness.
Those advantages do, however, come at the price of several disadvantages. The first disadvantage is that you need to generate an internal document for accounting & auditing purposes to document the prepayment made to the vendor. The second disadvantage with this approach is that you cannot directly identify the prepayments that get deducted when posting the final vendor invoice. As a result, marking all prepayment(s) made for settlement with the final vendor invoice needs to be done with utmost care.

Vendor prepayments (2)

09 Saturday Jan 2016

Posted by Ludwig Reinhard in Accounts Payable

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Dynamics AX, Prepayments, Purchase Order, Tax

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.

Setup
For the implementation of this approach two service items need to be setup that are used for recording the prepayments. Example:
EN_62_0005
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.
EN_62_0010
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.
EN_62_0015
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.
EN_62_0020

 

Process
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.
EN_62_0025

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
Result:
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.
EN_62_0040

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.
EN_62_0055
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.
EN_62_0060
As a result, Dynamics AX generates the following voucher.
EN_62_0065
The next illustration summarizes all transactions posted by using this second approach.
EN_62_0070
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.

 

Summary
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.

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