Chapter 3. Accounting Processes

So far we have seen the accounting tasks that require most of an accountant's time, because they are the bulkiest tasks: posting sales, purchases, and payments. But there are many other accounting tasks that have to be performed.

In this chapter, we will explore the following accounting processes:

• Posting accounting transactions

• Reporting taxes - VAT (Tax Posting setup)

• Managing fixed assets

• Inventory valuation

• Closing the accounting year

• Consolidating financial statements

• Deferrals

Posting accounting transactions

The system can automatically create and post many accounting transactions such as those for sales and purchase invoices, for instance. There are many other transactions that end up in an accounting entry automatically created by the system. We will actually see this in this chapter: taxes, fixed assets, inventory valuations, and so on.

You will probably need to post many other accounting transactions that are not managed by the system, such as payroll accrual entries, provisions, or others. You can post all these transactions using the General Journal.

The General Journal can be accessed by navigating to Financial Management | General Ledger and clicking on General Journal.

In the General Journal, you manually create the necessary transaction lines, indicating the Account No., Bal. Account No., and Amount as shown in the following screenshot. There are many other fields that could be filled in, actually, but we will start with an easy example:

When posting this...

Reporting taxes - VAT

Value-Added Tax (VAT) is a tax on consumption that is paid by the end consumer. VAT is calculated on sales and purchases and reported to the tax authorities periodically.

Note

The general concepts of VAT are the same in all countries where VAT applies. Statement and VAT rates differ from country to country. This book is based on the Dynamics NAV worldwide (W1) database. Most Dynamics NAV country versions include localizations on VAT.

In Dynamics NAV, VAT is calculated on sales and purchases invoices and credit memos. When the documents are posted, new VAT entries are created that will be used later on to report VAT to the authorities.

VAT is calculated based on the combination of VAT Business Posting groups (the customer and vendor fix it) and VAT Product Posting groups (the items and services fix it).

In Chapter 1, The Sales and Purchase Process, we have posted the sales invoice number as 103023. Let's take a look at the VAT entries that were created while posting the...

Managing fixed assets

Dynamics NAV provides a fully integrated fixed asset management functionality that allows you to track depreciation expenses reliably in multiple depreciation books. It is useful to have one depreciation book integrated with the general ledger, and another one for internal fixes asset calculations that do not have to be reflected in the general ledger. You can also keep track of other information relevant to fixed assets, such as maintenance cost and schedules, acquisition costs, and related insurance information.

Creating a fixed asset and posting its acquisition cost

Each fixed asset has a card, which contains all the information about the asset. To create a new one, you can follow these steps:

1. Navigate to Departments | Financial Management | Fixed Assets | Fixed Assets and click on the New icon from the ribbon bar.

2. A blank card opens. Press Enter to get a No. and give it a description. If the asset has a serial number, type it in the Serial No. field.

3. On the Lines Fast...

Inventory valuation

The valuation of your inventory must appear on your balance sheet accounts at the end of a fiscal year. The system can calculate the inventory valuation using different costing methods and can post it to the general ledger automatically, so that you do not have to worry about it. Due to performance issues, though, the inventory valuation is usually set up, so that posting to the general ledger is done manually.

Choosing a costing method

Dynamics NAV can calculate the valuation of your inventory according to five different costing methods: They are as follows:

• First In First Out (FIFO): It assumes that the first units to be received in your stock will also be the first ones that will leave it. The inventory valuation will be based on the cost of the last received units.

• Last In First Out (LIFO): It assumes that the last units to be received in your stock will be the first ones that will leave it. The inventory valuation will be based on the cost of the first received units...

Closing the accounting year

When a fiscal year reaches its end and accountants have finished posting all the needed transactions, it is time to perform the required tasks to close the year.

In Dynamics NAV, this can be accomplished in just a couple of steps: closing the accounting periods and running the Close Income Statement batch process. After that, it is advisable to restrict allowed posting dates to prevent users from posting any transaction in a closed year. If needed, though, further transactions can be posted.

Closing accounting periods

To close the accounting periods, we perform the following steps:

1. Navigate to Financial Management | Periodic Activities | Fiscal Year | Accounting Periods.

2. Run the Close Year process found on the ribbon.

3. You will be prompted to confirm that you want to close the fiscal year. You cannot choose which fiscal year to close. The system will close the first open fiscal year. Click on Yes. Refer to the following screenshot:

   

4. The fiscal year has been closed. Notice...

Consolidating financial statements

When you have a group of companies, you may need to aggregate their financial statements into a single one to know how the holding company is doing as a group.

Such a task can be performed to consolidate different companies that are in the same database, companies in different databases (even in older Dynamics NAV versions), or using data coming from other business management programs.

Regarding data, consolidation can be performed when the different subsidiary companies or business units have different charts of accounts, fiscal years, or currencies.

Performing consolidation

Performing a consolidation is as easy as executing a batch process. There are different scenarios, though, depending on where the data is. The easiest scenario is when all the companies, including both the consolidated and the subsidiary companies, are on the same database. Another scenario includes Dynamics NAV companies on different databases. And a third scenario includes financial...

Deferrals

Deferrals are used to record revenues and expenses in periods other than the period where we have posted the transactions.

Setups that you are required to perform are as follows:

• The main account setup for Deferral Account (Balance sheet) where deferred revenues are posted, when you post a sales invoice for services delivered over a span of multiple accounting periods. Refer to the following screenshot:

• The deferral template setup is where you can define Deferral Account, No. of Periods, Calc.Meth..., Start Date, and so on as shown in the following screenshot:

• Assign the deferral template to Resource, as follows:

• Record the sales invoice and view the deferral transactions as follows:

Summary

In this chapter, we learned how to post any accountancy transaction using journals. We explored how VAT entries are created when taxes are involved and how we can use them to report taxes to the authorities. We saw how to create a fixed asset and post its acquisition cost, revaluate it, calculate its depreciation, sell it, or cancel wrong entries.

In the annual accounting close section, we have learned the steps we need to perform in order to close the fiscal year, and in the inventory valuation section we came across different costing methods and how to reflect item costs into the general ledger. Finally, we have seen how to perform the consolidation of different subsidiary companies.

In the next chapter, we will take a look at the reporting tools available in Dynamics NAV. This way we will be able to analyze all the data collected in the system.