Dynamics NAV: Sales Line With Tax Amount Makes Deferral G/L Entries Incorrect

One of the new features of Microsoft Dynamics NAV 2016 is Deferrals, where the user can defer either Revenue or Expenses over a specified period.

Microsoft created this in a very straightforward manner, where you only need to set up Deferral Templates.

There are options to manually assign the Deferral code during transactions, or make the Deferaral code a default to Item Cards and Chart of Accounts, depending on the company’s business requirements.

However, there are number of issues related to the calculation of Deferrals if the Sales/Purchase Lines are taxable.

Microsoft released the Cumulative Update 12 for NAV 2016 (Build 47042) to fix this issue.

ID Title Functional area Changed objects
380817 Wrong G/L entries are created when a purchase line contains a deferral code and a sales tax jurisdiction contains a tax detail using the Expense/Capitalize Sales Tax functionality in the North American version. Purchase TAB 37 TAB 39

 

Although this issue is fixed on the Purchase Invoice Line, there is another issue in Sales Lines. The user will still encounter issues in NAV2016 CU12-CU14. Incorrect G/L Entries are created when a Sales lines is taxable and contains a deferral code.

Here are the steps to replicate:

  • Create Deferral Template – e.g. to defer the amount over 3 period
  • Create Sales Invoice, select a Customer with Tax Jurisdiction in BC
  • Create a Sales line, assign the Deferral Code and Tax Group = Taxable
  • Click the Preview Posting

Notice that the Deferral calculation is using the “Amount Including Tax” instead of the Amount Excluding Tax. As the sample transaction is Revenue/Unearned Revenue, recognition of taxes should be based on the recording of the Accounts Receivable and not when the revenue is earned.

As there is no fix yet from Microsoft, a workaround is needed to be able to achieve the correct G/L Entries for Deferral in Sales Invoice:

  • On the Sales Invoice Line that has the Deferral code assignment, make the Tax Group Code as Non-tax.  This way, no tax amount will be included in the Deferral. Then, create another line to record the Tax Amount with Deferral code = Blank.

Hope this helps.

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