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Business Central

Expected Cost vs. Actual Cost in Business Central: Why Your Inventory Value Changes
12
Oct

Expected Cost vs. Actual Cost in Business Central: Why Your Inventory Value Changes 

If you are dealing with inventory management in Business Central, you may be familiar with one peculiar phenomenon the inventory valuation is changing, but no final invoice was posted yet. You get the goods, create the purchase order, and immediately notice that the inventory valuation is different from the previous one. The reason is simple, you should understand the difference between Expected Cost and Actual Cost in Business Central.  This topic is important because you need to know about it to keep your accounting data correct and cash flow optimized. In addition, you need to learn what these costs mean and why your inventory value is changing.  What is Expected Cost in Business Central?  The Expected Cost in Business Central refers to the financial value of the inventory transactions until you receive the last invoice from the vendor or customer.  In the case when you are receiving your inventory based on the purchase order or sending the inventory to your customers based on the sales order. You are making movements of the physical inventory. However, as long as the system does not receive an invoice. The system cannot understand the actual, legal value of that transaction.  As a result, to have your operational quantity of the inventory correct, you can do the posting. When the option “Expected Cost Posting to G/L” is turned on in the Inventory Setup. The expected cost will post to a certain interim GL account (“Inventory Interim”).  What is Actual Cost in Business Central?  Actual Cost is the finalized and invoiced cost for a business inventory transaction. This involves the item cost and other direct costs including freight, insurance, and handling costs (Business Central handle these through “Item Charges”).  When you eventually post the purchase or sales invoice. The value will go through the process of changing from the Expected Cost to the Actual Cost. The interim general ledger journal entries will be undone and the Actual Cost will post to the official Inventory valuation account.  Reasons for Change in Your Inventory Value: The Adjustment Process  But why is your inventory value changing suddenly? Well, the most common reason for this is the Adjust Cost – Item Entries batch job.  When you post the receipt with the expected cost of $10.00 per unit and you receive an invoice with $12.00 per unit, the variance will be $2.00. Business Central manages this variance dynamically.  The Initial Posting: You received the item. The initial cost expected is recorded at $10.00 in the interim G/L.  The Invoice Posting: You post the invoice. The actual cost is now recorded at $12.00.  The Adjustment: The Cost Adjustment routine of Business Central is automatically performed. It uses the difference of $2.00 to adjust the value of the inventory.  Additionally, if item already sold before the actual vendor invoice posting. Business Central will also perform adjustments to your Cost of Goods Sold (COGS). It will adjust your inventory value and hence your profit margins to reflect the actual cost.  Best Practices to Manage Cost Variances  Follow these Business Central best practices to avoid any unpleasant surprises at month-end close:  Activate Automatic Cost Posting: Access Inventory Setup and make sure to activate “Automatic Cost Posting”. By doing so, all cost posting will be done in G/L automatically and will save you from a large backlog of manual postings.  Schedule Adjust Cost Job: Access Job Queue Entries and set up the “Adjust Cost – Item Entries” job to run automatically (for example, on a daily or weekly basis). This way you will keep your inventory valuations current without manual interference.  Invoice Receives Quickly: The more time goes by from when your receipt was received in your warehouse until you receive the invoice for it. The more time your inventory is valued as “expected” instead of “actual.” That is why you should invoice promptly.  Use Item Charges: Remember about transportation and handling costs. Make sure you use Item Charges on purchase receipts to ensure proper calculation of Actual Cost.  Conclusion  Transitioning from Expected Cost to Actual Cost in Business Central is not an error. Expected Cost and Actual Cost accounting feature in Business Central aligns finances with the physical world. Through comprehension of interim postings and use of cost adjustment jobs, you can dispel the confusion of inventory valuation and keep everything clear. 
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Special Orders vs. Drop Shipments: Understanding the Difference
17
Aug

Special Orders vs. Drop Shipments: Understanding the Difference 

To increase the range of their products without having money locked away in inventory, companies often turn to such procurement approaches as Special Order and Drop Shipment. Since both imply selling the item that you do not possess now of selling, the terms are often confused with one another. Nevertheless, in the sphere of logistics and ERP systems like Business Central, they are distinct operations that must be performed in different cases. Below is the explanation of the difference between these procurement approaches.  Special Order  The special order refers to the customer who wants to buy an item not in your normal inventory. You purchase the item from your vendor. Although it will be done especially for this customer because the inventory will come to your warehouse or facility first.  After the inventory reaches your dock. You receive the item, inspect it if needed, and ship the Sales Order of the customer using your inventory yourself. You own the inventory for some time.  Drop Shipment  In a similar way, the drop shipment refers to selling the item out of stock to a customer. You will buy the item from the vendor as well. The only difference is that the inventory won’t reach your warehouse.  You will make the sales order and purchase order, but you ask the vendor to send the product to your customer’s shipping address. You play the role of an intermediary in this transaction.  Core Differences  Although the customer receives the product in both cases, the backend process differs significantly in the following ways:  1. Physical handling and quality control.  When you place a special order, you get involved in the physical handling of the product. That allows you to do quality control check. Also, to make sure the product does not damage during shipping and that complete order fulfils correctly before the delivery to the customer. In case of drop shipment, you lose the control, the vendor ships the product flawlessly or not.  2. The unboxing experience.  If your business builds around the unique unboxing experience for your customers (special boxes, tissue paper, personal note), then the special order is mandatory. Drop shipment means that you receive the product in the packaging of the vendor and even may include the vendor’s shipping slips and logo.  3. Shipping Fees and Time  Drop ships tend to be quicker since the product takes the direct path from the vendor to the customer instead of making a stop at your facility first. In addition, there is no “double freight”. No paying to ship the item to you and paying again to ship it to the customer.  4. Accounting and Inventory  In an ERP environment, a special order will affect your inventory accounting temporarily and needs to be received. A drop ship order does not affect your inventory; the purchase price goes directly to COGS on receipt of the invoice from the vendor.  How Do You Decide?  Utilize Special Order procedures when the item is of high value, if it requires quality inspection, it requires shipping with other items already in your inventory, or it is of importance from the branding perspective.  Utilize drop shipments when the item is bulky or heavy (e.g. patio furniture, industrial machinery), when you need the product immediately, or when you absolutely want to avoid any warehousing cost whatsoever.  By understanding these different workflows and incorporating them into your business operation in the proper way via your ERP system, you can safely increasing your inventory. 
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7 Business Central Features Every CFO Should Know About
20
Jul

7 Business Central Features Every CFO Should Know About 

The position of the CFO has undergone dramatic changes. Not anymore do you act merely as a “chief number cruncher”; rather, you now become a catalyst for growth of the business. How? It is by means of an integrated system with smart functionality providing up-to-date insight into the financial wellbeing of the company.  There are seven Business Central features which every CFO needs to be aware of to maximize their efficiency.  1.Real-Time Financial Dashboards  There are no more waiting periods of several weeks after closing the books at the end of the month before you can find out how the business is doing. In Business Central, there are role-based real-time dashboards for the CEO which enable him/her to see the KPIs, to monitor liquidity, profitability, and expense ratios. Power Bi Finance app also helps to monitor KPIs.  2. Intuitive Cash Flow Forecasting  Cash is the heart and soul of any business but forecasting it has always been a tough job. With the help of Business Central, you can remove this uncertainty because it helps you in forecasting your cash flows using historical data as well as planned receivables and payables. It gives you an edge over your competitors as it helps you plan for any shortfall in the future and manage your cash intelligently.  3. Automated Accounts Payable/Receivable Workflows  Data entry is time-consuming and creates errors which cost money. With Business Central, you don’t have to enter all that data manually. With automated accounts payable and receivable workflows, you get more free time to use on other tasks. Tasks like matching invoices and even automated payment recommendations save you plenty of time.  4. Smooth Power BI Reporting  Traditional financial reports may fail to paint a complete picture. Since Business Central is native to the Microsoft environment, it automatically provides native integration with Power BI. This means that CFOs can create customized financial reports without moving data into Excel. With Business Central, you will be able to drill-down from a high level of financial reports straight into transactional details.  5. Easy Intercompany Consolidations  When running more than one subsidiary or entity, financial consolidations are often time-consuming and error-prone due to version control issues. With Business Central, all intercompany postings and eliminations are done automatically. Financial consolidations in various currencies and fiscal years using various charts of account can be created easily in just a couple of clicks.  6. International Compliance and Multi-currency  Going international means dealing with many different tax laws, financial reporting, and exchange rates. Business Central has built-in support for an unlimited number of currencies, automatic conversion to exchange rates, and localized tax compliance. The more you expand internationally, the more the system will adapt to local financial rules reducing the compliance risks and burden of your internal audit team.  7. Artificial Intelligence in the Form of Copilot  The future of accounting involves predictive analytics, and now you have access to that through Microsoft Co-pilot. CFOs can prompt Co-pilot using natural language to generate a summary of the financial performance of the company, analysis of anomalies in budget variances, and even sales forecasting. AI assistance allows you to save several hours of tedious data mining every week and transform it into strategic narrative.  Conclusion  For the contemporary CFO, Business Central is not only an ERP system but a strategic ally. It allows you to automate mundane tasks, get rid of siloed data and use artificial intelligence to provide predictive insights. If your current financial software is hampering your work, it might be high time to consider implementing Business Central in your company.
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Understanding Consolidations in Business Central for Multi-Company Reporting
29
Jun

Understanding Consolidations in Business Central for Multi-Company Reporting 

For businesses that have their operations in several subsidiaries, divisions, or separate legal entities, it is no secret that one of the issues faced when the accounting period comes to an end is consolidation. It takes up valuable time and leaves much room for mistakes when trying to aggregate all the spreadsheets manually into a consolidated report.  Microsoft Dynamics 365 Business Central makes this process easier by providing native consolidation. In other words, instead of depending on third-party systems or working with Excel-based solutions. You can consolidate your accounting data right inside the system you already use. Here we will consider the consolidation process in more detail.  The Key Element: Business Units  “Business Units” is the key element of the consolidation process in the Business Central software. This refers to the branches or subsidiary companies that one plans to consolidate under the parent company. If one does not plan to have several databases, then he can create them in Business Central.  After creating the units, one will be able to get data from each unit whether they come from the same database or from another business central environment and bring them in the G/L entries of the consolidated company.  Dealing with Complexity: Currencies and Chart of Accounts  Among the most difficult aspects in multi-entity consolidation, currencies and differences in Chart of Accounts are two major concerns.  Business Central automatically handles currency conversion. You specify your consolidation rules and the currencies you need. The software will automatically convert the amounts from the subsidiary using exchange rates you specified. Resulting in a proper valuation of your consolidated balance sheet in your currency.  Also, subsidiaries might use an alternative numbering in their Chart of Accounts. Business Central Consolidation Charts of Accounts tab solves this issue. For instance, the “Office Supplies” account may have number 5000 in the subsidiary while in the parent company, its equivalent “General Admin” has number 6000. In such a case, a link ensures that all the money would go to the right account despite its source in another organization.  The Critical Step: Eliminations  The total amount of balances in all sub-ledger accounts will not amount to a consolidated financial statement because there exist intercompany transactions. For instance, when one company in the group sells its products to another company in the group, the sales proceeds are intercompany transaction proceeds that must be eliminated.  In Business Central, elimination is done through the Eliminations process. Financial professionals can make elimination entries depending on certain percentages or dimensions that have been set. The eliminations are made through postings to eliminate the payables, receivables, and revenues resulting from intercompany transactions. Some elimination entries may not be automatically posted, although the system provides the means of posting them manually.  Real-Time Reporting & Analysis  The best possible advantage of applying Business Central as an aid in performing consolidations is the ability to gain real-time insight. The information generated by the process becomes immediately available in financial reports, covering all aspects of a corporation’s financial health. No more waiting of weeks for correct spreadsheet numbers; with the information standardized, analysis is almost immediate.  Conclusion  It goes without saying that the expansion of corporations brings about a higher need for efficient financial reporting processes. Spreadsheets are unable to satisfy the ever-growing demand of multi-company reporting, hence the need for consolidation capabilities, such as those of Business Central. Not only does it minimize the risk of mistakes; it also cuts down the period of the financial close cycle drastically.
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Beyond the Balance Sheet: Managing Fixed Assets Efficiently with Business Central
15
Jun

Beyond the Balance Sheet: Managing Fixed Assets Efficiently with Business Central 

For many companies’ experiencing growth, it’s likely that fixed assets such as laptops, vehicles, machinery, and even property form an important part of their capital structure. Surprisingly enough, however, asset management in most cases remains a manual affair. Too many companies depend on spreadsheet systems for depreciations, location tracking, and maintenance scheduling something that results in mistakes, non-compliance, and an inability to get the full value of the business.  Business Central by Microsoft Dynamics 365 is a powerful tool for addressing such difficulties, providing integrated asset management within the context of an entire ERP system. In this way, it turns a cumbersome process into a productive one. Here’s how Business Central can assist with fixed asset management.  1. Centralized Data and Automation  The first thing that makes the use of Business Central worthwhile is the absence of silo systems. In this system, you do not need to have an extra ledger in Excel that needs to be reconciled with your ledger account monthly. Rather, when you purchase a new fixed asset, you fill out its “Fixed Asset Card” by putting down all pertinent information, including the value of the asset purchased and how it will be depreciated.  Once this is done, the automated process kicks in as you prepare journals that are set up to make calculations for depreciation on an automatic basis into your G/L account. This applies whether you apply a straight-line method, declining balance method, or customized depreciation method.  2. Complete Lifecycle Management  It’s not simply a matter of acquiring the asset, recording depreciation expense, and then forgetting about it; asset management includes management of the full lifecycle of that asset. With Business Central, you can do just that.  Asset Acquisition: Integrate seamlessly with Accounts Payable and easily convert a vendor invoice into a fixed asset record.  Maintenance: Monitor repair expenses and maintenance schedules. This will allow businesses to determine the total cost of owning the asset and choose either repairing the asset if it is old or replacing it.  Asset Disposal: In case of asset disposal, system record gain or loss automatically with proper accounting entries.  3. Insurance & Compliance Management  Usually business forgets insurance documentation until something goes wrong. With Business Central, users can document the insurance information and even specify insurance amounts for assets. Users will even be able to create reports on the total book value of their assets compared to their insured amount.  In addition, for businesses that are required to comply with regulations and laws on many different levels, users can maintain separate sets of books for tax purposes and internal use.  4. Real-Time Reporting and Analysis  Finally, Business Central helps transform data into information. Using real-time reporting, one can perform analysis regarding asset usage, depreciation costs, and net book value. The management can now use this information to make informed decisions in the context of capital budgeting. The software helps find out the underused assets for selling, and whether there is a need to buy a new equipment.  Conclusion  Today, being efficient has become crucial. Using manually prepared Excel sheets for fixed asset management cannot be justified anymore. With the help of Business Central by Microsoft Dynamics 365, one can ensure data accuracy, comply with relevant regulations. Also have a better insight into the portfolio of physical assets. The balance sheet is not enough anymore, and it is time to embrace technology. 
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Timing is Everything: How Deferrals Improve Revenue and Expense Recognition in Business Central
08
Jun

Timing is Everything: How Deferrals Improve Revenue and Expense Recognition in Business Central 

In the field of accounting, cash reigns supreme, while accuracy rules the roost. For most organizations, especially those involved in selling subscription models or maintenance plans. There can be a significant difference between when the cash comes in and when the task gets completed. You may get the revenue for an annual subscription plan in the month of January; however, the fact remains that you have not earned that income yet till December. Booking it all in the month of January would mean presenting financial statements that show rapid growth in January followed by stagnancy in the following ten months. That is why deferrals become very important, and Microsoft Dynamics 365 Business Central comes to the rescue here.  The Challenge of Matching  Matching is the heart of the accrual accounting system where the concept says that revenue should be accounted for when the related expenses have been incurred. Thus, if you make the sale of an annual software license, the income arising from that sale must be spread over the life of the license. On the other hand, payment of insurance premiums on a yearly basis should be expensed in monthly instalments.  Lack of a suitable deferral tool forces finance professionals to take recourse to cumbersome and risky manual processes involving spreadsheet-based calculations. The finance team will need to estimate the amount of recognition on a month-on-month basis. Followed by preparation of journal entries that will see funds transferred from a Balance Sheet Account like Unearned Revenue to the Profit and Loss Account.  Automation of the Process in Business Central  Through automation, Business Central makes the dependence on spreadsheets redundant by recognizing the income and expenses automatically. Create the “deferral templates,” to determine the way transactions recognition.  While creating the sales invoices and purchase invoices in Business Central, it becomes possible to assign deferral codes. At that moment, the income is recognized automatically, but it does not go into the Profit & Loss (P&L) straight away. Instead, most of the income goes to a deferral account on the Balance Sheet side. The accounting process then continues based on the plan that you have defined (monthly, quarterly, or yearly).  Eliminating Financial Uncertainty  What’s important about this feature is the visibility it brings. By postponing income and expenditures, you give a realistic representation of how your business functions to your investors.  Let’s take a manufacturer, who buys an expensive shipment of materials in one quarter for the whole year at once. This means that in Q1 there will be an immense drop in profits, which might scare off potential investors. Whereas quarters two, three, and four will look exceptionally profitable. By taking advantage of expense deferrals in Dynamics 365 Business Central, you distribute the cost equally, making profitability less variable and comparing figures monthly easy.  Compliance & Confidence  Aside from management convenience, expense deferrals make you compliant with standards like GAAP and IFRS. Come audit time, you won’t have to scramble looking for Excel sheets or calculations scattered across the board. You have all your data built into Business Central. Log every schedule and automatic post right back to its source.  Conclusion  Financial reporting involves not only making sure accounts balance but telling the real story of what goes on in your company. With an economy that depends on subscriptions and agreements that span for years, accurate accounting becomes an essential part of business processes.  With the help of deferred functionality in Business Central, one can leave the uncertainty of manual estimates behind. You will be able to make sure you recognize your expenses and income at the correct time. As a result, you can make the necessary decision and scale your busine
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