How to Set Up and Use AP Deferrals in Dynamics 365 Business Central

Prepaid expenses generally involve posting the invoice to a prepaid expense G/L account and subsequently recording monthly journal entries to recognize this amount from prepaids to the relevant expense account(s). With the use of Deferrals in Dynamics 365 Business Central this process can be streamlined to the initial AP invoice posting, thereby eliminating the subsequent monthly to-do. Users can simplify prepaid expense postings with Deferrals in Business Central. This standard functionality was first introduced in Dynamics NAV 2016 and can often be overlooked.

This blog outlines the steps to start using Deferrals and create a prepaid expense to be recorded over 12 months from July 2021 to June 2022. Examples of which can include insurance, office supplies, and repairs and maintenance.

Steps to Set Up the AP Deferral

1. Navigate to Accounting Periods and create the financial year(s) as applicable to ensure the future deferral periods are defined.

2. Navigate to Deferral Templates and create a new Deferral Template Card.

    1. In the General FastTab, enter the Deferral Code, Description, and select the relevant Balance Sheet G/L Account for the Deferral Account (in the screenshot below, 10960 for Prepaid Expense).
      Note: you would setup as many cards for G/L Account and duration combinations required.
    2. In the Deferral Schedule FastTab, enter the Deferral %, of Periods, Calculation Method, Start Date, No. of Periods, and Period Description.

For Period Description, placeholder codes can be included to automate the insert:

  • %1 = The day number of the period posting date
  • %2 = The week number of the period posting date
  • %3 = The month number of the period posting date
  • %4 = The month name of the period posting date
  • %5 = The accounting period name of the period posting date
  • %6 = The fiscal year of the period posting date

3. Create a new Purchase Invoice. On the Purchase Invoice Line, select the appropriate expense G/L Account (in this illustration, 61200 for Repairs and Maintenance) and define the Deferral Code. If the Deferral Code field is not available, use Personalize to add the hidden field.

4. On the Purchase Invoice Lines, navigate to More Options > Line > Related Information > Deferral Schedule to view the period amounts to be posted.

From here, you can edit the fields (Amount to Defer, Calc. Method, No. of Periods, and Start Date) then click Calculate Schedule to recalculate the amounts.

5. Post the Purchase Invoice then navigate to General Ledger Entries and filter to your posted Purchase Invoice to review the related transactions.

In the filtered entries, you will observe the following:

  • The invoice is initially recorded to the expense account (61200) and Accounts Payable (20100)
  • The deferred amount is then reallocated to the Prepaid Expense asset (10960) account from expense (61200)
  • 1/12 of the expense is recorded in the current month and in each of the succeeding 11 months
  • All entries recorded at once when the Purchase Invoice was posted

Contact us if you have any questions about deferrals in Dynamics 365 Business Central.

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