Accrued expenses/revenues and the capabilities of the Business Central system

Effective management of a company's finances is the key to success. Accrued expenses and income are important elements of this process. In today's Out Of The Box post, we will present why you should pay attention to the possibilities offered by the Business Central system in the context of these accruals. We will present two ways to process accruals - the use of a recurring journal and a billing schedule.

The option to process financial transactions using recurring journals is used for transactions that are posted repeatedly with few or no changes. For accruals, it is an alternative to using the Master Journal and preparing posting orders manually in it.

Cyclical journals in Business Central are a tool that allows you to automate and facilitate accounting processes, especially those that occur regularly over specific periods. They are very useful for activities that recur on a cycle, such as monthly, quarterly or annual accounts.

Create cycle logs in Business Central:

After logging into your Business Central account, search for "Cyclic Master Log" in the search box and go to the related page. Then open the "Master Log Instances" page by selecting the "Instance Name" field and choose the one you will be working with at the moment.

To create a new instance, select the "+New" action. In the "Name" field, enter the name of the instance, for example, "Rent". - to complete is also a description of the instance. It is possible to assign a numbering series for the instance (the system will automatically assign a document number for the reassignment) - otherwise the document number will have to be filled in manually. After entering the data and closing the page, a new blank cycle log will open. The next step is to complete the line fields.

The "Cyclic method" field is used to specify whether the amount to be reposted is to be fixed or variable. The most commonly used cyclic methods include:

- Fixed - the amount of the journal for each period is the same, used for settlement of prepaid insurance premiums, recording fixed cost invoices.

- Variable - the journal amount for each period is different, used when recording variable cost invoices without using purchase documents.

- Balance - The account balance of a line is allocated between the accounts listed for that line on the Allocations page. Includes periodic allocation of costs between departments or inter-company cost allocation.

The next step is to specify the "Cycle frequency". This field contains a formula that determines the posting frequency of a journal line entry. The three most commonly used formulas are:

- 1M - posting every month, according to the posting date of the first reclassification.

- 1D+1M-1D (1 day + 1 month - 1 day) - the program determines the date for the last day of the month regardless of the number of days in the month.

- 1M+CM - using this formula, the program calculates one full month and the remaining days of the current month.

For further consideration, we will use as an example a fixed method with a fixed frequency of the reposting cycle on the last day of the month.

The next step is to enter the "Posting Date". This field with each subsequent posting will be filled automatically based on the specified "Cycle Frequency". The first posting date should be specified. Also to be filled in is the "Document No." field of the cycle journal line, if the numbering series is not assigned to the instance, the "Type" and "Account Number" and the amount to be re-posted in the period. The "Description" field can be completed automatically based on the account name. Before posting, it can be changed manually or a formula can be used to fill in the corresponding text: %1 corresponds to the number of the current day, and %3 to the number of the current month (e.g., RMK %1%3).

The "Expiration Date " field - specifies the last date on which an entry using a given line of the cyclic journal can be posted.

It is possible to allocate a master journal entry to several accounts during journal posting. Allocation can be done by quantity, percentage or amount.

As a result of posting the cyclic journal prepared in this way, it can be seen that the amount of PLN 2000 was removed from account 641-01 with the date in accordance with the formula set earlier. On the other hand, posting to account 400-01 appeared for PLN 2000, in accordance with the settings of the cyclic journal.

After posting the cyclic journal, which was prepared as above, you will notice that the journal lines are retained after posting and the program prompts for the next posting, changing the posting date to the end of the next period.

Use of the accrual schedule:

The second very intuitive and fast method used for accruals is to use the billing schedule in Business Central. In this case, specific reclassifications are already decided by the user when preparing the purchase invoice. On the line of the purchase invoice, the field "Accruals code" is available.

The accrual code has its own file, where you need to define the accrual parameters: code and description identifying the type of code, accrual account (K/G account into which accrual expenses are posted), as well as such parameters as accrual percentage, calculation method, start date (determines the start date of calculating accrual amounts), number of periods and period description.

By entering the accrual code on the invoice document, there will be an opportunity to verify the details of the schedule, i.e. how the RMK reclassifications will look like, for this document - these are editable elements until the posting itself.

Once the invoice is posted, all reclassifications between the RMK account and the target cost account in the set periods through the selected schedule will be automatically created.

In summary, by using an accrual schedule, we are better able to plan the timing of payments to suppliers and monitor their fulfillment, as well as manage recurring charges such as subscriptions or rents.

On the other hand, one of the main benefits of using cyclic logs is the automation of the process. Thanks to the fact that the log rows are automatically generated based on the set parameters, you can save a large amount of time and minimize the risk of mistakes while having full control over the process.  

With the presented functionalities, you can effectively organize financial operations, avoid delays and errors, and effectively manage the financial aspects of the company.

I encourage you to follow our blog to learn more about the capabilities of the Business Central system.