Mastering the Month End Close Process with NAV: Accounts Payable and Receivable

As with other ERP solutions, the month end close process in Microsoft Dynamics NAV is unique. This series leverages what is unique to NAV in order to help you draft your own period-end checklists and covers the following areas:

• The General Ledger
• Accounts Payable and Receivable (this blog post)
• Bank Reconciliation and Re-Evaluating Foreign Exchange Balances
• Fixed Assets and Inventory

In my first post I covered how to perform month end close tasks related to the General Ledger. In this post, I’ll cover Accounts Payable and Receivable (AP and AR, respectively). In addition to outlining the month end closing process from an AP and AR standpoint, this post also includes some of the out-of-the-box reports you can leverage in Microsoft Dynamics NAV to help you gain better insight into monthly activities.

One of the biggest concerns around accounts payable at month-end is whether expenses have been posted to the correct period per the organization’s policies on expense recognition cut-off.

Given that by default Dynamics NAV uses the current date as the “Working Date,” you will need to be aware of this if your policy allows for leeway to post expenses to a previous month.

Many organizations will give a window of 2-3 business days after the end of the month to include expenses that belong in the previous month, particularly if corporate cards are used, which have statements that are released soon after the end of the month.

A typical month-end process for accounts payable in Dynamics NAV would involve:

• Separating invoices and expenses that belong in the previous month for data entry;
• Changing your Working Date in NAV to the last day of the previous month. To do so:
  • Click on the date in the bottom left of your main NAV window;

Change the Working Date in the pop-up window that appears to the last day of the previous month;

• Click OK
• Proceed to process the accounts payable for the previous month as necessary;
• When done, change your Working Date back to the current date for the other payables;

This batch can then be given to the posting-responsible party to post.

Because bank account reconciliations involve the clearing of payments issued from NAV compared to bank statements, your bank reconciliation-responsible team member may flag stale-dated cheques, however, that is defined by your organizational policies (typically anywhere between 3-6 months).

To void a cheque and re-issue, you would need to perform:

• A stop payment (if the cheque was lost in the mail/unaccounted for) request to your issuing bank;
• Navigate to Bank Accounts by either using the global search or by navigating to Departments > Financial Management > Cash Management > Bank Accounts;

Click on the relevant bank account and select Cheque Ledger Entries from the ribbon;

Click on the payment you issue in the list and click on Void Cheque in the ribbon;

Enter the last day of the previous month to void in the prior period as the Void Date;

• Select Unapply and void cheque (if voiding an applied payment to reissue) or Void cheque only (if voiding a manual cheque);
• Click Yes;

The entry will show outstanding at the end of the previous month and now be open for you to issue in the current month.

Two reports exist in NAV to help monitor and reconcile your accounts payable to the general ledger:

• The Aged Accounts Payable report – which allows you to see which payables are current, past due, and potentially reaching delinquency;
• The Reconcile AP to GL report – which allows you to see all the purchase receipts that have yet to be invoiced;

AGED ACCOUNTS PAYABLE REPORT

To run the Aged Accounts Payable Report, you can use the search function to find it or navigate to Departments > Financial Management > Payables > Reports > Aged Accounts Payable Report. When you open it, you then complete the following:

With this report, you now have information to use for either investigating, following up on, or reversing by credit memo any past due posted payables.  Use the total of this report by vendor posting group (i.e. Domestic, US, etc.) to reconcile the sub-ledger accounts payable balance to the corresponding payable control account in the GL.

RECONCILE AP TO GL REPORT

This important report shows anything that has been received through POs, however have not been invoiced for. These items will, consequently, not exist in your general ledger, since the invoiced amounts are what hit the G/L. You can use the amounts displayed here to set up an accrual (for example), if necessary.

To run the report, you can search for Reconcile AP to GL or navigate to Departments > Financial Management > Payables > Reports > Reconcile AP to GL.

This report has a variety of filters you can apply to narrow down your results:

Similar to accounts payable, a concern that exists with sales and receivables is ensuring that the accounts receivable balance has been posted to the correct period per the organization’s policies on receivables recognition cut-off.

Because by default Microsoft Dynamics NAV uses the current date as the “Working Date,” you will need to be aware of this if your policy allows for leeway to post sales/revenues to a previous month.

Many organizations will give a window of 2-3 business days after the end of the month to include expenses that belong in the previous month, particularly if sales occur over a month-end weekend. Since sales revenue is often used as a metric for determining performance compensation, this can be an area of sensitivity that companies will be cautious about.

A typical month-end process for accounts receivable would involve:

• Separate sales invoices that belong in the previous month for data entry;
• Change your Working Date in NAV to the last day of the previous month (see Accounts Payable instructions for changing the Working Date above).

Create a new journal batch for bad debts, using your Bad Debt expense as your balancing account (if using the Direct Write-off Method for uncollectible receivables).

• Create your lines using the following parameters:
  • Posting Date: The last day of the previous month
  • Document Type: Credit Memo
  • Document No.: A document identifier for the transaction
  • Account Type: Customer
  • Account No.: The Customer No. in question
  • Description: A meaningful description for the transaction
    • Dimensions should be filled in as required
    • Balancing account fields should be pre-populated with the settings of the batch

Click on Apply Entries… in the ribbon

Select the relevant invoice(s) to apply against and click on Set Applies-to ID in the ribbon;

• Click OK;

Submit this batch to be posted by the posting-responsible team member. When it is posted, the amounts applied against the invoices will be written off directly to the balancing account as at the month-end.

If you’ve configured Finance Charges in your system, the routine for charging financing fees to delinquent accounts at month-end (based on the Finance Charge Terms you set up in NAV), is as follows:

• Search for Finance Charge Memos or go to Financial Management > Periodic Activities > Receivables > Finance Charge Memos

• Click Create Finance Charge Memos in the ribbon

• Enter the relevant Posting Date and Document Date fields in the report prompt

• Click OK to generate the lines

A diagram of the Finance Charge Memo process is as follows (courtesy of Microsoft Official Training Materials):

The month-end for accounts receivable principally revolve around collection and collectability. If there are any delinquent accounts receivable, they may need to be written off or escalated to a more aggressive collections process or factored off to a collections agency.

The built-in aging report for A/R helps accomplish these tasks and monitor the performance of your accounts receivable and the effectiveness of your account settlement processes.

AGED ACCOUNTS RECEIVABLE REPORT

To run the Aged Accounts Receivable Report, you can use the search function to find it or navigate to Departments > Financial Management > Receivables > Reports > Aged Accounts Receivable. When you open it, you then:

With this report you now have information to use for either investigating, following up on, or write-off / credit memo any past due posted receivables. Use the total of this report by customer posting group (i.e. Domestic, US, etc.) to reconcile the sub-ledger accounts receivable balance to the corresponding receivable control account balance in the GL.