Perform Prepaid Expense Amortization through Subscription Billing in Microsoft Dynamics 365 for Finance
Posted on: November 1, 2023 | By: Christopher Rusing | Microsoft Dynamics AX/365
Reading the title of this blog might be initially confusing. How could you amortize prepaid expenses through a module that is focused on billing customers? It is true that the main function of subscription billing is to support additional functionality when billing customers. There is the recurring contract billing functionality that can be used to configure a billing schedule for your customers. Also, in accordance with ASC 606, the multiple element revenue allocation allows you to allocate revenue across different items and the revenue deferral configuration allows you to defer revenue on certain sales. However, the revenue and expense deferral part of the module also allows you to configure prepaid expense amortization as well! There is more than meets the eye when you understand the capabilities of this module. This is a much more sophisticated solution than the periodic journals, the fixed asset module, or any other standard functionality in Microsoft Dynamic 365 (D365) today. In this blog, I will explain how to utilize that aspect of the module to perform prepaid expense amortization in D365 for Finance.
Firstly, you must disable the revenue recognition module and enable the subscription billing module through the feature management workspace. Also, you must enable the Revenue and expense deferrals feature in that list as well.
Once you have the module configured to determine which items and ledger accounts you want to defer, the system will automatically create our prepaid amortization schedules. In this screenshot, I’m posting an invoice for an insurance bill to demonstrate how this works. This is an insurance bill for $2,4000 and I have selected the ledger account 132100 ‘Prepaid Insurance’ as my offset.
The key aspect of this expense deferral functionality is that I’ve identified the 132100 account as something that should be automatically deferred. So, after the invoice is entered, the system automatically checks this Deferred box to indicate that a deferral schedule will be automatically created upon posting of the invoice. Please note that this functionality works for general journals and purchase order line items and/or procurement categories too.
Clicking the Deferral button above the invoice journal lines will show you a preview of the inputs to be used for the deferral schedule. This can be edited prior to posting the invoice.
The deferral schedule is automatically created upon invoice posting as the insurance invoice was the source transaction. The ‘deferral schedule’ is the prepaid amortization schedule that you are likely tracking outside of D365. You can access these schedules in Subscription billing> Revenue and expense deferrals> Deferral schedules> All deferral schedules. Please note that the deferral schedules for revenue recognition will appear here as well.
Here is the deferral schedule created for that insurance invoice that I previously posted. The recognition account is populated from the configuration; however, this can be changed prior to recognizing the expense. The schedule lines show how the prepaid expense will be amortized. The amortization schedule can be modified for certain business scenarios as well.
Let’s say it’s the beginning of next month and I’d like to amortize the prepaid expenses for the month of November. I’m going to run Recognition processing to generate prepaid expense amortization journal entries. This process can be run on a batch job for efficiency and automation.
The general journal is created based on the inputs from the deferral schedule. Another note on automation here, if you would like, this journal can be automatically posted after creation.
If you want to learn more about performing prepaid expense amortization through subscription billings in Microsoft Dynamics 365 Finance, contact us here to learn how we can help you grow your business. You can also email us at email@example.com or call (312) 345-8817.
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