Detailed purchase order accounting entries in ax 2012

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Vendor Prepayment Functionality in Microsoft Dynamics AX 2012

Prepayments are a common business practice, with organizations issuing prepayments to vendors for goods or services before those goods or services are fulfilled. To minimize risk, you can track prepayments by defining the prepayment on a purchase order. Vendors can also create a prepayment invoice that is associated with a purchase order.

New prepayment functionality is available in Microsoft Dynamics AX 2012, making it easier for organizations to complete, manage and track prepayments to vendors. There are five steps involved with processing a prepayment for a purchase order, which include the following:

1. Create the purchase order.

1. Set up the prepayment.

1. Post the prepayment.

1. Make a payment.

1. Settle the payment against the final invoice.

Create the Purchase Order

The first step toward simplifying the prepayment process is by creating a purchase order. Take a look at Figure 1 to see an example of a created purchase order.

Figure 1: Here is an example of a purchase order (so for example, PO 0000511 of $146,200 USD is set up for Vendor 3003).

Set up the prepayment

After a purchase order is created, you must then set up the prepayment that will be associated with it. To do that, click on the Purchase tab in the top ribbon, and then click Prepayment (see Figure 2).

Figure 2: To set up prepayment in a purchase order, simply click on the Purchase tab, and then click Prepayment.

After clicking Prepayment, a window will pop up, asking for you to enter details regarding the prepayment (see Figure 3). In the Description field, enter the description of the prepayment that you’re creating, and then click the prepayment basis that you wish to apply.

With the prepayment basis, you have two options: Fixed or Percent. With the fixed option, you can apply a fixed dollar amount that you wish to apply to the purchase order amount. In Figure 3, we have entered a fixed amount with the value of $100,000 – so if we choose this prepayment option, $100,000 will be applied to the purchase amount.

With the percent option, you can choose to apply a certain percentage of the purchase order amount (see Figure 4). In Figure 4, we have entered 10% as the percent value, so 10% of the purchase order will be applied as prepayment. As you can see, the system calculates the 10%, showing the prepayment as $14,620, which is of course 10% of the total $146,200 purchase order amount.

Figure 3: One of the two prepayment options available in Dynamics AX 2012 is Fixed Amount. With a fixed amount, you can specify the dollar amount you wish to apply to your purchase order with your prepayment.

Figure 4: The other prepayment option that’s available is Percent Amount. With a percent amount, you can specify the percentage of the purchase order that you wish to apply to the whole purchase order with your prepayment.

For the purposes of this demonstration, we’ll keep the prepayment as 10% of the purchase order amount. After you define your prepayment values, enter a Prepayment Category ID from the dropdown, and then click Save (see Figure 5).

Figure 5: After you define the values that you wish to apply to your purchase order, save the prepayment record.

If after creating a prepayment you decide you don’t want to apply it to the purchase order, you can remove it by simply selecting the Remove Prepayment option in the top ribbon (see Figure 6).

Figure 6: Remove a prepayment on a purchase order by simply selecting the Remove Prepayment option in the top ribbon.

After you have configured the prepayment you wish to apply to the purchase order, confirm the order by clicking the Confirm option.

Post the prepayment

After you set up the prepayment basis toward a particular purchase order, you can then post the prepayment. To do that, go to the Purchase Order header, then to the Invoice option, and click Prepayment Invoice (see Figure 7).

Figure 7: To post a prepayment, go to the Purchase Order header, then to the Invoice option, and then click Prepayment Invoice.

After clicking the Prepayment Invoice, enter the invoice description and post the prepayment invoice.

Once the prepayment invoice is posted, check to make sure that the vendor transaction and vendor balance reflect the prepayment invoice transaction (see Figure 9).

Figure 9: Check to make sure that the vendor transaction and vendor balance correctly reflects the prepayment invoice transaction once a prepayment is posted.

Make a payment

After creating the prepayment and posting the prepayment invoice, it’s now time to make a payment. To do so, first create a Payment Journal, mark the prepayment amount, and then post the journal.

Figure 10: When making a payment on a prepayment, you first create a Payment Journal, mark the prepayment amount, and then post the journal.

At this stage, it is important to also check the vendor transactions and vendor balance (to ensure that everything continues to match up correctly).

Figure 11: Make sure that when you make a payment on your prepayment, that the vendor transactions and vendor balance match up to ensure correct payment.

Settle the payment against the final invoice

The final step of the prepayment process is to settle the payment against the final invoice. To accomplish this, first go to Purchase Order and Receive the Products, and then go to the Invoice section and click Invoice. When you’re on the opened form, click Apply Prepayment (see Figure 12).

Figure 12: To apply a prepayment, first go to Purchase Order and Receive the Products, and then go to the Invoice section and click Invoice. Click the Apply Prepayment option.

After clicking Apply Prepayment, a screen will open to show the prepayment amount that can be applied to the Invoice Amount (of the purchase order). The “Available application amount” field indicates the prepayment amount (see Figure 13).

Figure 13: After you click Apply Prepayment, a screen will pop up displaying the prepayment amount (in the “Available application amount” field) that you can apply to the Invoice Amount of the purchase order.

Then select the prepayment to be applied (or if you’ve set up multiple prepayments, you can select those as well), and then click Apply Prepayment (see Figure 14).

Figure 14: If you’ve set up multiple prepayment amounts, you are allowed to apply them to the purchase order (if you select them). Once the prepayment(s) are applied, click on Apply Prepayment.

After applying the prepayment, enter the invoice description and post the invoice (see Figure 15).

Figure 15: After you apply the prepayment, enter the invoice description and post the invoice.

After the prepayment has been applied and posted, check the open transaction that still needs to be paid to the vendor, and confirm the amount (see Figure 16). In our case, since we applied a prepayment that is 10% of our $146,200 purchase order (which equals $14,620), we see that we still owe $131,580 on the purchase order after our prepayment ($146,200 – $14,620 = $131,580).

Figure 16: After applying your prepayment, confirm that the remaining amount you owe on the purchase order is correct.

By using the Microsoft Dynamics AX 2012 prepayment functionality, you’re able to gain greater financial visibility and more cohesive organization of your financial processes. Also, with this enhanced insight, you support and sustain your financial relationships with vendors – crucial for boosting and maintaining business success.

Prepayments in AX 2012

Today we are going to talk about prepayments in AX 2012.

Prepayment function is used to record a receipt from a client into A/R that doesn't have an invoice yet. This prepayment function is used to offset the cash on a prepaid A/R account instead of the regular Accounts Receivable account.

Once the invoice is created and settled against the prepayment, the system will automatically post a customer settlement transaction to offset the A/R prepaid account with regular A/R and ensure the balances are closed. Below are the steps and the result of this process:

Before creating your payment journal, you need to define a new posting profile for prepayment. This will ensure the payment is recorded in prepaid A/R instead of regular A/R. The new posting profile is then selected in AR > Setup > Parameters > Ledger and sales tax > Prepayment journal voucher fields group.
Select the new posting profile in the "Posting profile with prepayment journal voucher" field. Also, check the "Sales tax on prepayment journal voucher" if you want sales tax to be deducted from the payment received. Sales tax will be adjusted when the invoice is created and settled against the prepayment only if the amount o the invoice is more than the prepayment itself.

Go to Accounts Receivable > Journals > Payments > Payment journal. Create a new payment journal like you would usually do when receiving a receipt however since you don't have an invoice yet, do not select the invoice, the invoice field will remain blank.

Before posting the journal make sure to flag the payment as prepayment. For that, on the journal go to the "Payment" tab and mark the check box "Prepayment journal voucher". By marking this check box, the posting profile will automatically be changed to the prepayment posting profile previously selected in the parameters.

Once all the information related to the receipt (amount, receipt number, date...) are entered, post the journal and verify the voucher. The result should be DB to cash and CR to A/R prepayment account selected on the new posting profile.

Once you are ready to invoice the customer, create a new invoice as a free text or sales order invoice and post. Validate that the voucher is DB A/R and CR revenue.

At that point A/R and A/R prepayment do have open balances and the invoice and the payment transactions are open.

To close both transactions and zero out A/R and A/R prepayment, go to AR > All customers > search for your customer and click on Collect > Settled open transactions

You will see the invoice and the prepayment transactions, mark them both and click on Update button.

The result of the settlement is a new posted voucher with DB A/R prepayment and CR A/R. Both A/R are zeroed out and invoice and payment transactions are settled and closed.