Finance Accounting is Fun with AX 7
This blog is for all AX application consultants, Manager and Program Manager.
I am writing this blog to explain basic finance accounting with AX 7. You don’t really need to have a finance background to understand finance accounting in Dynamics AX. Before I start explaining finance in AX, I will brief some basic account concept, principles and terminology to make it easy for you to relate with real scenario.
Some Basic Accounting Terms:
Revenue – Income from business. (e.g. Sales, Turnover).
Expense – Something spent to accomplish a purpose. (e.g. Travel, Operating expenses, Taxes).
Asset – In simple words anything of value that can be converted into cash. (e.g. Property, Cash, Investment).
Liability – Company’s financial debt, in other words money or services owed to another party.
Chart of Account – List of all companies account.
Balance Sheet – Financial statement which includes asset, liabilities and shareholder equity. In simple words this report gives you an idea of what company owns and owes and amount invested by shareholders.
Income Statement – This statement and report shows profit and loss sustained by company.
Now you have a little idea on the very some basic terms which you will be seeing while implementing finance in AX. The most important terms to understand before you start working finance in AX are Debit and Credit. As per the double entry system every business transaction is recorded in at least 2 accounts, means one account will receive a debit entry and other will receive credit entry.
The main confusion here is that which account should get credited and which account should get debited. For example, when any organization takes 5000 from a bank this transaction will affect two accounts as per double entry accounting system.
1. Cash Account (Asset Account).
2. Payable Account (Liability Account).
Now you have identified two accounts now which account to debit and which to credit. Very easy way to identify is that whatever comes in is debit whatever goes out is credit depends on the situation and transaction.
In this scenario
1. Cash Account (Asset Account) - Debit
2. Payable Account (Liability Account) - Credit
Here is a simple diagram to demonstrate the process.
Now when you have understood the basic finance terms and debit/credit transactions, we are good to start implementing finance in AX.
Let’s take a real time example and try to implement the same in Dynamics AX.
Simple Scenario: Suppose there is a company name XYZ and they sell Mobile phones, they buy mobile phones from different vendors and sell to different customers. This is just a very simple example to explain how to finance accounting can be implemented in AX, their requirements can vary according to their needs.
Now let’s talk these requirements in AX terms.
Legal Entity – XYZ
Financial Dimensions – Item, Vendor, Customer
Currency - USD
If you are thinking what is this financial dimension and why do we need this, here is a brief description
A financial dimension is a subaccount to the general ledger chart of accounts and they allow accounts to be broken down into additional detail for reporting and analysis. In simple terms they simplify the accounting process for detailed analysis, else you need to create lot of accounts for each combination of account.
Let’s define a simple chart of account as well. Chart of account is a list of company’s all account.
Main Accounts:
1000 to 1999 – Assets
2000 to 2999 – Liabilities
3000 to 3999 – Equity
4000 to 4999 – Sales
5000 to 5999 – COGS [Cost of Goods Sold]
6000 to 6999 – Operational Expense
7000 to 7999 – Non Operational Expense
8000 to 8999 - Others
In this blog we will cover the following areas:
Configuration of General Ledger
• Currency and exchange rules setup
• Fiscal Calendar and Periods setup
Plan and configure Chart of Accounts
• Chart of accounts
• Create Main Accounts
• Financial Dimensions
• Financial Dimension Set
• Account Structure
• Advanced Rule
• Main Account Allocation
• Ledger Setup
• Account for Automatic Transactions
Setup and Process Journals
• Journal Setup
• Journal Controls
• Journal Descriptions
• Balance Control Accounts
• General Ledger Parameters
Let’s get started and jump into AX and start with our first section configuration of General Ledger:
1. Setup currency and exchange rule – We setup exchange rule and multi-currency setup is used to enable transaction in multiple currencies.
CURRENCY (Default Currency) EXCHANGE RATE TYPES EXCHANGE RATE REVALUATION ACCOUNTS (This account will be used for currency valuation process and will determine gain and losses)
AX contain the list of almost all currencies, we will update an existing currency and assign it to a ledger as default currency. Let’s navigate to currency form to have a look.
Navigate to General Ledger >> Currencies >> Currencies
Filter to USD currency and click edit
You see a checkbox here for triangulation currency – this is mainly used for European countries. Basically when you convert from one currency to another, you must convert via triangulated currency.
Currency converter – As label tells Online numeric conversion tool, it is used when user needs to see reports in other currency then the default one. For example, here we have USD as default currency and you want to see your trial balance in Euro as a reporting currency, to do that you need to on conversion yes for Euro.
Rounding Rule – It says what are we going to round any amount to, for example if I mention 0.01 AX will round to nearest hundred. You can set rounding rules for SO, PO, Prices and Assed fixed depreciation.
Let’s set Euro as triangulated currency with currency conversion and rounding rule on.
Next step would be, add your currency information to Ledger.
Navigate to General Ledger >> Ledger Setup >> Ledger
Here you will set Accounting currency and Reporting currency under currency tab. We have set currency as USD, you still can do transaction in other currencies if you have setup conversion rate for that currency.
Let’s setup exchange rate
Create New Exchange Rate Type >> Exchange Rate >> Assign to Ledger
Navigate to General Ledger >> Currency >> Exchange Rate Type and create a new exchange rate type Default 2016 and click Exchange rate to define exchange rate.
Now setup exchange rate from USD to EURO, while setting up conversion rate you can select dates from which this conversion rate would be applicable.
You can set conversion rate for as many currencies you want, now let’s assign this exchange rate to our Ledger.
Navigate to Ledger form and set exchange rate as Default 2016.
The same way you can set the budget exchange rate as well.
Note: you can either create exchange rate manually or you can directly import exchange rate.
2. Fiscal Calendar and period Setup
You must know this before you can post any transaction in AX you must have open period and open fiscal year.
Each Fiscal calendar can have one or more Fiscal year and each fiscal year can have many periods in it. Also, each fiscal calendar can be used by multiple legal entity.
Create a Calendar >> ADD Period >> Link to Ledger
Navigate to GL >> Calendar >> Fiscal Calendar, click new and add new fiscal calendar name “Default” and 2016 as fiscal year.
You can see it has created 12 periods as we mentioned length of period = 1 and unit months.
Next step is to add this fiscal calendar to ledger
Navigate to GL form and add the fiscal calendar the one we created above.
3. Chart of Account - Before creating a chart of account you must plan your chart of account.
As we discussed a simple scenario in start, let’s configure our accounts accordingly.
Navigate to General Ledger >> Chart of Account >> Account >> Chart of Account
Click New to create a new COA
Under Main account mask we entered **** that means account number would be strict to 4 digits.
4. Create Main Accounts.
Before creating Main Accounts, we will have a look on commonly used main account types.
Profit and Loss, Revenue and Expense
Balance Sheet, Asset, Liability and Equity
Total
Report
As we discussed a scenario initially. Let’s create main accounts
Main Accounts:
1000 to 1999 – Assets
2000 to 2999 – Liabilities
3000 to 3999 – Equity
4000 to 4999 – Sales
5000 to 5999 – COGS [Cost of Goods Sold]
6000 to 6999 – Operational Expense
7000 to 7999 – Non Operational Expense
8000 to 8999 - Others
Click new and enter account number, name and Account type. You can enter other necessary information as required like if you know offset account # (use to make an opposite transaction as per double entry system rule) or currency information etc.
Add Legal Entity under Legal entity overrides tab.
Note: You won’t be able to add legal entity if you have not set the same Chart of Account in Ledger
Add all the accounts the same way. I have added the accounts we discussed initially.
We create some accounts as total accounts for reporting purpose as well. I will display one demonstrate to configure total account (Expense total [operational and non-operation accounts].
Click New to add a Total account.
Enter Account number, Name, account type and legal entity detail.
Click on Total button and add from value and to value to define accounts range.
Click save and exit.
Now other different type of account is Reporting account. Let’s configure one reporting account as well (For Profit and Loss reporting account).
Note – This account can be posted; we will use this account for reporting purpose.
Click new and enter account number, name, main account type = Reporting and Reporting type = Header.
Now we have created a COA and have added all main accounts.
5. Now let’s talk about Finance Dimension.
Finance Dimension: Financial dimensions are used to provide more detail about a transaction in the general ledger. Please note financial dimensions are not really mandatory setup to implement AX. However, this makes life easy and simplify the accounting process. It helps to view and track the data efficiently. So it is always a good practice to use finance dimensions.
Type of Dimensions
Let’s move to AX and create all financial dimensions what we discussed in scenario.
Navigate to General Ledger >> Account >> Dimensions >> Financial Dimension
Click New and select Department (Org Type Financial dimension) from dropdown “Use value from” and enter Department Name and Report column name.
Now click on activate to activate the dimension for use.
Click on Dimension Values button to see all the department available.
Please leave a comment, if you like this I would be covering the remaining part in next blog.
Email: sunilwadhwa1186@hotmail.com PH: +91 9177866055
