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The Lowdown on Accounting and Inventory Periods in Dynamics 365 Business Central

Closing a Fiscal Year can be a timely and chaotic process. Microsoft Dynamics 365 has tools to help make this process more efficient. In addition there are a host of other features that help businesses manage accounting and inventory periods.

My colleague Ramin Marghi has extensively covered Month End Processes in Business Central and has several articles including Mastering the Month End Close Process: Tips & Tricks . With this article I wanted to focus less on specific month end processes and more on the Accounting and Inventory periods.

Fiscal Years

“Accounting Periods” is a page in Business Central that will let us determine the Fiscal Year for a company.  Many companies follow the typical Calendar Year of January to December for their Fiscal Year, but numerous companies opt for having a Fiscal Year that isn’t aligned with the regular Calendar Year. This can be due to many reasons but most commonly stems from the seasonality of their business or even the busyness of January as employees come back from the holidays.

Accounting Periods

Defining your Fiscal Year in Business Central is really just as simple as opening up the “Accounting Periods” page and checking off “New Fiscal Year” for the appropriate Fiscal Year.

Creating a new Fiscal Year is also an easy task, simply click on Process and Create Year:

Accounting Periods

You can then specify what the Fiscal Year start date is, the number of periods and the length of those periods.

Create Fiscal Year

The flexibility of the accounting periods is you can specify any fiscal years you would like; the period lengths don’t have to be based off of months and you don’t have to necessarily generate an entire year. Some retail and manufacturing businesses operate in 13 weeks cycles using a 4-4-5 calendar system. Other organizations may want to operate based off of a school year or a 52–53-week year. In Business Central the 4-4-5 system would look a bit like this:

A new Fiscal “Year” (also known as a period) occurs at the end of every month composed of 5 weeks in January, 4 in February and 4 in March.

Closing Periods

If you’re an accountant or know any accountants, you would know that the term “Year End Close” generally isn’t followed with bouts of excitement. The celebrations are generally reserved for after the “books” have been properly balanced and closed for the year. What I like about Business Central is that while the accountants panic over the numbers the rest of the team can go about their day without interruption.

Employees can be blocked from posting in prior periods and the accounting team can breathe a sigh of relief knowing that an unexpected ledger entry won’t suddenly appear in the prior year.

One thing to note is that the Accounting Periods and Fiscal Years in Business Central are optional. Primarily, the periods are used for increased reporting functionality and they’re only a requirement if you are going to be closing your income statement.

The actual act of closing a period and the income statement is also rather simple in Business Central. It’s a two-step process that starts with running the Close Year function (which flags the fiscal year as closed) and then running the Close Income Statement function which will then automatically prepare journal entries to close any Income Statement account amounts.

Inventory Period

Note: Closing a fiscal year can’t be undone, this process should only be done when you’ve finished posting in that period.

There are a few different fields that we have to consider for this function:

  • Fiscal Year Ending Date: The last date in your fiscal year.
  • Journal Template: Which journal template the function points too, this is defaulted too GENERAL.
  • Journal Batch: Which journal batch you would like your entries prepared in.
  • Document No.: This auto fills in if a no. series has been assigned.
  • Retained Earnings Acc.: You can also specify your Retained Earnings G/L Account.
  • Post to Retained Earnings Acc.: There are two options here, Balance and Detail.
    • Balance: To balance your journal entry there will be a summarized amount on an extra line.
    • Detail: Each journal entry line is balanced against the Retained Earnings G/L Account.
  • Posting Description: A manual description can be filled in here.
  • Business Unit Code: A toggle option if you are working inside a consolidated company.
  • Dimensions: You can also specify which dimensions you would like to use for your entries. A journal entry line is created for each different dimension value combination you would have.
  • Inventory Period Close: Specifies if an inventory period exists and has been closed.

Once the function is run then your entries will be prepared and ready for reviewing in the specified journal batch.

Inventory Periods

Inventory periods are separate from accounting periods and operate based off of a user defined ending date. You can set up as many Ending Dates as you would like but typically this could be a part of the month end process.

Inventory Periods

Two major differences with the inventory periods versus the accounting periods is 1) Inventory periods can be re-opened and 2) When an inventory period is closed it will restrict any new inventory postings before the ending date.

In my experience the use cases of the inventory periods are few and far in between compared to accounting periods. If you ever need posting to be restricted for specific users that can already be defined in the User Setup page.

Despite some limited use cases there are still two benefits. One is the Test Report, this is a report that can be run based on Ending Date to show you what Item Ledger Entries are unposted and will have a negative value.

The second is that you can Adjust the Cost of Item Entries. What this function does is adjusts your Items Unit Cost based off of purchases made. As the purchase cost can vary either from vendor to vendor or even from a single vendor, this is the best way to ensure that Item Costs are accurate and up to date. So, the inventory periods can be useful specifically for this function but alternatively the Adjust the Cost of Item Entries can be setup automatically as a job through the Inventory Setup page.

Inventory Setup

Overall, the inventory periods don’t have as many uses as accounting periods. Generally, they can be used in addition to restricting the posting periods of different users. Although one benefit is that a closed period will supersede the user setup, so it does provide extra peace of mind.

The Final Scoop

For many of our clients and new Business Central customers, the accounting periods are a somewhat under-utilized feature. Many customers come over from bookkeeping software such as Sage and QuickBooks so the different period functions and pages can oft be overlooked. The utility of the accounting periods shouldn’t be discounted as they can provide more control over your reporting (especially when comparing your financials to prior periods) and help speed up your closing processes when utilized correctly.

Got questions about Dynamics 365 Business Central? Contact us directly and one our ERP experts will get back to you.

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