Many of our clients have multiple companies which buy from the same vendors and/or sell to the same customers. If this describes your company and you want to a) streamline your cash receipts and disbursements processing and b) optimize cash management by consolidating bank accounts, you can utilize Microsoft Dynamics AX to pay vendors or receive cash from customers in multiple legal entities/companies in one step and using a single bank account. Dynamics AX gives you two tools to do this – Intercompany Accounting and Centralized Payments.
In this post, we will look briefly at the two methods and talk about the pros and cons of both. We will look primarily at multi-company vendor payments, but the same principles and setup apply to multi-company customer cash receipts. In additional blogs titled Multi-Company Customer and Vendor Payments - Part 2 Intercompany Accounting and Part 3 Centralized Payments, we will go through the setup and processing for both methods.
Intercompany accounting has broad application across Dynamics AX and can be used in all financial journals (i.e. General Journal, AP Invoice Journal, AP or AR Payment Journal).
Basically, Intercompany Accounting allows you to have a multi-company journal, a journal with lines for multiple legal entities. When the multi-company journal is posted, Dynamics AX generates and posts multiple journal entries (one for each legal entity included in the journal) and automatically creates the Due To/From entries to balance the journal entry within each legal entity.
Example 1: You have three different legal entities (USMF, DEMF, and USRT) but pay all vendors from one bank account (in USMF). (All the screenshots are from the New Microsoft Dynamics AX, but the functionality is the same in AX2012.)
Open vendor invoices:
The AP Payment Journal would look like this. (NOTE: You may need to personalize the Journal Voucher window to add Account Type and Legal Entity, called Company Accounts).
The resulting journal entries would be:
In Company = USMF
In Company = DEMF
To Company = USRT
Notice that in this example the vendor Property Management is set up separately for each legal entity and the vendor accounts are NOT linked in the Global Access Book. To utilize this method of AP payments across multiple companies, you will need to (a) separately select each vendor (in each company) and settle their open invoices separately or (b) Create Payment Proposal for each legal entity.
Example 2: Same scenario, same facts. In this scenario, however, Centralized Payments has been set up, AND the Property Management vendor account in all the legal entities have been linked in the Global Address Book. The vendor account numbers do not need to be the same, but they must be linked. (We will cover this in an additional blog titled Multi-Company Customer and Vendor Payments – Part 3 Centralized Payments.)
The AP Payment Journal would be:
The net effect is the same, but using Centralized Payment you (a) select the vendor once and (b) can view and settle all the open invoices for this vendor across all your companies.
In summary, the net accounting effect from both methods is the same:
- One Payment Journal to pay vendors across multiple legal entities
- Subledger transactions (i.e. General Ledger, AP, Cash and Bank Management) generated in all legal entities with Due To/From transactions automatically created
- Utilize one bank account for multiple legal entities, simplifying cash management
The first method, Intercompany Accounting, is easier to set up but requires more manual effort for each Payment Journal as each vendor and the vendor’s invoices to be settled must be selected individually by company within a Payment Journal. Also, this method would generate three checks (in the above example) to the vendor.
The second method, Centralized Payments, requires more one-time setup (see additional post Multi-Company Customer and Vendor Payments – Part 3 Centralized Payments) but each Payment Journal is easier to prepare as a vendor is selected once and invoices across multiple legal entities can be settled at the same time. Also, this method will result in one check being generated. Access our Community Resources Library for Part II: Using Intercompany Accounting in this series.
Contact us if you have questions regarding multi-company customer and vendor payments.
About the AuthorMore Content by Diann Spencer