Are you dreading the financial month end process of reconciling the intercompany accounts?
No problem for D365.
Here is a strategy for creating Main Accounts in a D365 Chart of Accounts the simplifies the reconciliation process. The numbering convention results in a visually easy to reconcile trial balance in your consolidation Legal Entity. The strategy for an numbering convention in your chart of accounts also lends for visual ease of seeing balanced transaction on a Financial Reporter 'consolidating' financial statement.
Our goal today is to Create an numbering convention for Main Account that makes the reconciliation and elimination of Intercompany Receivables and Payables easy !
Our level of effort will be higher for the design plan and setup.
Our benefit will be:
simple intercompany journals
easy reconciliation
easy eliminations.
Consolidated Trial Balance that is easy to reconcile and eliminate.
1. Main Accounts
First we will create an Excel plan of numbered Legal Entities and desired Main Accounts.
The main intent of this plan is to correlate the last three digits of specific Main Accounts with a specific Legal Entity.
i.e. The Main Account for the fourth Legal Entity always end with "004"
Note: Main Accounts 190004 and 290004 both are related to Legal Entity 4.
I have determined that my Intercompany Receivables and Liabilities are going to be long term, thus have numbered them 19#### and 29####.
This blog focuses on strategy related to intercompany 'Ledger' journals.
The third digit ##0### is meant for use with intercompany "Ledger" journals.
In anticipation of future Chart of Accounts enhancement the numbering convention for the third digit is designed to accommodate Intercompany Sales and Purchase orders.
i.e. ##1###.
Notice that there is a short list of Main Accounts
(one Receivable and one Payable account per Legal Entity),
I have purposely omitted creating an account for every possible "combination' of intercompany transactions.
The reason for this omission, is:
simplification of the Chart of Accounts
simplification of the Trial Balance
Later in this blog we will cover the related setup that automates the the combinations of the Originating and Destination Legal Entities as they relate to the Main Account.
Take a moment to review the numbering convention displayed on this exhibit.
Exhibit: Preliminary Excel Plan for Main Account Numbering Convention
When implementing D365, I like to use two character ISO country abbreviations to create
IDs for my Legal Entities. (this is optional strategy). This provides for 99 Legal Entities per country, and simplifies naming for global implementations.
Dedication of the last three Main Account digits to Legal Entity number (#90###) provides room for implementing 999 Legal Entities.
Next, we will enhance our the above Excel plan for use with a couple Legal Entities per the following countries:
Great Britain (GB)
Italy (IT)
Unites States of America (US)
Notice that I have not changed the Main Account numbers
I have only updated the plan for the Legal Entity ID's and Main Account descriptions. to correlate to my desired Legal Entities in the above listed countries.
Exhibit: Enhanced Excel Plan for Main Account Numbering Convention
2. Setup Intercompany Accounting
General ledger > Posting setup > Intercompany accounting
I plan on only allowing Great Britain and Italy to originate Intercompany ledger journals.
My sample journals will be originated in Legal Entity GB01.
I have mocked an Intercompany Accounting Setup Plan for :
Intercompany Accounting for four Legal Entities that are allowed to originate Intercompany ledger journals.
After the exhibit for Intercompany Accounting Setup Plan,
I will exhibit one of the setups in D365.
Color Legend:
Yellow: Destination Company Main Accounts relate to the Originating Company ID
Orange: Originating Company Main Accounts relate to Destination Company ID.
Gray: Illogical setup (Do not setup,)
(A Legal Entity does not Post Intercompany to itself)
Exhibit: Intercompany Accounting Setup Plan
Exhibit: D365 Intercompany accounting setup
General ledger > Posting setup > Intercompany accounting
Click new and setup D365, for each line per your Intercompany Accounting Setup Plan.
Example: GB01 originating an Intercompany ledger transaction with US01 destination.
see plan above.
3. Post some Intercompany Journals
We will use GBP currency for all our Intercompany journals for consistency of our examples.
Note: You can use any currencies that you have setup in D365.
Our scenario will be for one of the Legal Entities (GB01) to originate intercompany ledger transactions with GB02, IT01, and US01.
We know that when we post an intercompany journal, D365 will post the related voucher in the offset company and also convert the transaction currency to the corresponding company's accounting currency, if needed.
4. Consolidated Trial Balance
Assumptions:
We performed a Consolidate, Online in Legal Entity ID = CONS
The consolidation company's accounting currency = GBP
The Foreign currency revaluation and Consolidation Currency Translation Adjustment have updated all amounts in the Consolidated Trial Balance to GBP amounts.
Related blogs:
Hurray !!!
We have achieved a Trial Balance that is easy to reconcile.
Note: You can visually reconcile and do not even need a calculator !
Exhibits: Consolidated Trial Balances
Example D365 Financial Reporter
Note: Balance Sheet is limited to the transactions posted during this blog.
