Create and Post Month-End Deferral Entries in NAV 2016

With the deferral functionality in NAV 2016, accounting users can now automate the process of deferring revenues and expenses over a pre-defined schedule by setting up deferral templates. The deferral template allows the distribution of deferred expenses when incurred and revenues when recognized to appropriate posting dates. This feature also offers flexibility in calculating deferral amount wherein users can switch from one calculation method to another (i.e. straight line, equal per period, user defined) when needed.

Note that in order for this feature to work, the user allowed posting dates for the involved future accounting periods need to be opened.

Deferral entries for NAV 2016 are available on:

• Sales documents – Sales Invoice, Sales Credit Memo, Sales Order, Sales Return Order
• Purchase documents – Purchase Invoice, Purchase Credit Memo, Purchase Order, Purchase Return Order
• General Journals

• Simplify month-end closing 
  Eliminate manual data entries to transfer deferrals from one General Ledger (G/L) account to another G/L account after transactions are posted. In prior versions of NAV, the standard or recurring journals are often used to record the monthly expense allocation entries.
• Reduce posting errors
  Facilitate accurate postings of incurred expenses or recognized revenues in the appropriate period based on the deferral schedule.
• Super easy to use
  NAV 2016 only requires the set-up of deferral template and assignment of deferral code in the general journal, purchase, or sales line.
• Fast reconciliation and reporting
  Users can view deferral account balances by vendor, customer, or G/L account at any time using the out of the box deferral summary reports.
• Less time spent on spreadsheets
  No need to maintain spreadsheets (i.e. prepaid amortization schedules) to track deferral accounts’ movements and balances.

To demonstrate this functionality, I’m going to use the following scenario:

A user creates a purchase invoice for equipment insurance amounting to $6,000. The total insurance premium will be allocated over the next 12 months. The invoice will be recorded in January 01, 2016 and to be expensed monthly starting January.

The first step is to create a deferral template to distribute the monthly insurance expense. In this example, the user will create a deferral template for 12 months with the deferral amount distributed evenly.  The deferred G/L account for this template is 13505 (Prepaid Expense). Once the template is set-up, it should look like this:

The detailed steps in creating a deferral template can be found here.

The next step is to create a purchase invoice. In this example, the insurance premium will be charged to G/L account 62750 (Equipment Insurance expense). On the purchase line, the user will assign the deferral code which triggers the deferral amount calculation (see below screen shot). Optionally, the deferral code can be set-up directly on the G/L account card on the “Default Deferral Template” field under the G/L Account posting tab which will be automatically populated on the line entry once the G/L account is inserted.

To view the Deferral Schedule, choose Line on the Lines Fast tab and then choose deferral schedule. In the deferral schedule window, the user can change the calculation of the deferral amounts by amending the calc. method (i.e. from equal period to Straight-line) or changing the start date or no. of periods.

If the user made any changes on the deferral schedule, the Calculate Schedule button needs to be executed to recalculate the deferral amounts.

Before posting the invoice, make sure that the user has the correct allowed posting date range.  To do this, go to User Setup and change the “Allowed Posting To” field to the last period included in the deferral schedule.

Now it’s time to analyze the G/L entries posted.

Go to posted purchase invoices > select the related invoice document > navigate the G/L entry.

NOTES:

• The total insurance premium amount of $6,000 was posted to the deferral account G/L account 13505 and not to G/L account 62750 which was originally entered on the purchase invoice line.
• Debit and credit entries of $500 were created showing January’s expense allocation to G/L account (Equipment Insurance) and deferral reversal entry to G/L account 13505 (Prepaid Expense).
• To display the expense allocation entries for the subsequent periods, remove the filter on the posting date field.  Note that reversal entries of the deferred account are automatically created for each future periods.

For reconciliation purposes, the out-of-the-box Deferral summary reports can be generated to view the details of the deferral account (i.e. Recognized Amount, Remaining Amount, Description of the deferral entries, etc.). The total remaining amount on the report should agree with control account’s G/L balance as of the specified period.

Our Microsoft Dynamics NAV 2016 Blog Series is designed to give you a better understanding of the new features in NAV 2016 and what they look like from a user perspective. Our NAV team will be combining their expertise and walking you through different scenarios with these new features. This way you can decide for yourself if upgrading your NAV system is a good idea now or later. We will be covering the following areas:

• How to Create Permissions
• Power BI and Jet Enterprise
• Finance Improvements – Posting Preview and Document Totals
• The Value of Upgrading to NAV 2016
• Stay tuned for Workflows, Web Client, and CRM Integration!