Almost every company either makes sales or purchases of services where the service time is more than one accounting period. Proper accounting practices allow companies to spread that amount over the time period of the sales/expense. For example, your company may sell subscriptions where one payment is made upfront, but the subscription covers an entire year. Or you may purchase subscriptions or insurance where one annual payment is made, but the expense is spread over twelve months. Business Central (BC) provides a convenient way to process these deferred amounts for both sales and purchase orders. In this post, we’ll review how to set up and process deferred sales and expenses.
Setting up Deferral Templates
The setup for deferrals is actually quite simple. You can have multiple deferral templates to cover your various needs. Navigate to Deferral Templates and click + New. Fill out the template fields as shown below:
- A deferral code and description are needed to help identify the deferral.
- Next, enter a Deferral Account. This is normally a balance sheet account where the deferred balance will be posted until the amount is amortized.
- Deferral % – This is the percentage of the total you want deferred. Normally, you would enter 100%, but you could enter a smaller amount depending on your needs. Perhaps you only want to defer 50% of an amount. In this case, 50% would be expensed/sold and the remaining 50% would be deferred and amortized based on the remaining settings.
- Calc. Method – The system allows you to define how you want the expense to be amortized. The options are:
- Straight-Line
- Equal per Period
- Days per Period
- User-Defined
Each of these options amortizes the amount differently, so it’s a good idea to try different methods to determine the best for your organization. User-Defined allows you to customize the amortization when posting the amount. As shown below, when using User-Defined, you will manually set the periodic amortization depending on your needs.
- Start Date: This setting allows you to control when to start the amortization. Options include:
- Posting Date
- Beginning of Period
- End of Period
- Beginning of Next Period
- Beginning of Next Year
For example, you may pay your annual insurance premium in November, but want the amortization to start at the beginning of the next calendar year. You can select Beginning of Next Calendar Year and the amortization will begin then.
- No. of Periods – Enter the number of periods the amount will be amortized over.
- Description – Enter the description for the amortization entry. Several % sign wildcards can be used in the description field to allow custom descriptions to be used per period (see below).
Processing Deferrals
For this example, we will focus on deferred expenses, but processing deferred sales revenue is identical. Create a purchase document as usual with the line showing the G/L account where the expense will be posted. Expose the Deferral Code field if not showing and enter the deferral template code desired.
If the code you selected is User-Defined, you will then need to click on Related Information / Deferral Schedule to enter the periodic amortization (see screenshot above).
Posting Deferrals
After entering the deferral code, you are good to post. Note that when using deferrals, BC will post not only the invoice, but also ALL the amortization entries with their appropriate posting dates.
A couple of notes related to posting:
- You will notice that all of the future amortization postings are also made. This can be troubling for some companies as future postings are being made.
- If there needs to be an adjustment to the amortization for future periods, this will need to be manually done.
- Since you are posting into future periods, those posting periods need to be open. BC helps with this by allowing you to enter expanded allowed posting dates used only for deferrals in the General Ledger Setup and User Setup pages. You can keep your normal allowed posting dates, but have expanded dates for deferrals.
Summary
Using Deferrals can help reduce the number of amortization entries that your accounting department needs to make. It also helps prevent missing an amortization entry when posting monthly. They are easy to set up and use. Try them out in your organization.
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