A natural follow-up to my previous blog post, Customer Ledger Entries in Business Central – Business Central Musings, on svirlan.com, which explored the Order to Cash process and Customer Ledger Entries, would be to delve into the Procure to Pay process.
I published a book that goes over not only Procure-To-Pay, but covers many, many other topics like ad-hoc analysis, Order-To-Cash, Procure-To-Pay, General Ledger Entries insights.
While exposing the Procure to Pay process in Business Central, I will be scrutinizing the system’s created vendor ledger entries, will be delving into the accounting practices required to manage the general ledger accounts associated with these transactions, and will be identifying key considerations when making purchases from vendors.
The strategy involves buying a product, sending the invoice via email to the supplier, receiving and invoicing the order, and then making payment to the supplier.
Create Purchase Order
There are a few ways of creating a Purchase Order in Business Central assuming you have the permissions:
- search for Vendors, choose your vendor, and from the Actions menu, choose New Document, Other and lastly, Purchase Order.
- search for Purchase Orders and create a New one.
The advantage of using first method is that the vendor information comes already filled up on the Purchase Order page.
On the purchase order, on the line, fill up the item number and the quantity. That should be enough fir the system to pull everything else mandatory.
To really simplify the exercise choose the NONTAXABLE group code for Tax Group Code field. We can note in the details that now tax shows $ 0.00.
Email Purchase Order
We created the vendor, let’s now acknowledge the vendor that the order has been created and we are ready to receive and invoice.
From the ribbon, choose Print/Send:
You might wonder where the body of the email is coming from or where the attachment is coming from. For body, the system comes loaded with a default body layout. You can see it in Report Selection – Purchase page. The choice for attachment is provided via Report Id 1322:
Receive & invoice
The vendor received the email, and dispatches the product to us. After receiving the ATHENS desk at our warehouse, a warehouse employee can post the receipt.
The result is a Purchase Receipt document. You can view it under Order -> Receipts:
Additionally, the system creates one item ledger entry. You can review it when you click on Find Entries:
The Item Ledger Entry record shows how 1 (one) ATHENS desk enters our warehouse. The Value Entry associated with this Item Ledger Entry shows that our Inventory is now richer by $ 780 due to the new item coming in.
General ledger entries
When posting the order and the invoice is generated we get 4 general ledger entries:
- first two: an “in” and an “out” to wash the direct cost of the item through the inventory account
- last two: a debit to inventory account (10700), increasing the assets side of the accounting equation (assets = liabilities + equity) and a credit to accounts payable account (20100) also increasing the other side of the equation.
Vendor Ledger Entries
There is only one vendor ledger entry for the invoice:
Detailed Vendor Ledger Entries
What did we do with the original vendor ledger entry record? These are details related to original vendor ledger entry. We start with an Initial record, Initial Entry, followed by, will see soon, an applied Payment, that closes the Vendor Ledger Entry record.
Essential is the fact that we have a vendor ledger entry of type Invoice that has a Remaining Amount of $780, which we should pay by Due Date.
Pay Invoice
We have, again, a few options to pay the invoice.
Create Payment action in Vendor Ledger Entry Page
We could do it from the Vendor Ledger Entry page, by using Create Payment action:
After filling up the form needed to collect data for the payment in the screenshot below:
We can inspect the Payment Journal and the line generated:
We are now ready to print and mail the check to the vendor. Use Check -> Print Check in the menu:
And Print:
Print your check, and post the journal line, to apply the payment and close the invoice.
As a result, we are crediting the bank account 10100 (money leaving the bank account (asset)) and debit the accounts payable (20100), decreasing our liabilities:
Overall, we can conclude the T accounts for the 2 transactions as following:
| Transaction | Assets | Liabilities | Equity | ||||
| Inventory | Bank | Account Payable | |||||
| Dr. | Cr. | Dr. | Cr. | Dr. | Cr. | ||
| Txn 1: Purchase Invoice | 780 | 780 | |||||
| Txn 2: Pay invoice | 780 | 780 | |||||
Quick look at how the Vendor Ledger Entries appear after posting the payment. They both have a Remaining Amount of 0, since they were applied against each other:
The Detailed Ledger Entries show an Initial Entry for the Invoice and an Application of the Payment:
We could have generated the general journal lines using Suggest Vendor Payments report.
Use Suggest Vendor Payment report
Search for Payment Journal.
Then, in the Prepare menu search for Suggest Vendor Payments. Make sure to include your Due Date in the Last Payment Date in the request page of the report:
There are questions in the MB-800 exam around Suggest Vendor Payments report, make sure to understand vendor priority and available amount option in the Suggested Vendor Payments request page.
This will generate all payments with a Due Date less than Last Payment Date for Vendor No. = 10000.
We can cut the check only for the highlighted transaction to pay for the desk or we can print the check for all invoices to be paid.
Business Central users can engage with their bank to send payments electronically. A text (EFT) file would be generated with payments information, as per bank instructions and requirements, file would be uploaded to the bank, and a remittance advice would be generated to acknowledge vendors of the payments executed.
Business Central consultants generally get involved in setting up the vendors, designing purchase order confirmations, or purchase invoice layout, customizing the check layouts, or the remittance advice if customers have specific requirements. Setting up data exchange formats for electronic payments is also one of the business needs often at the top of the implementation requests.
Conclusion
In this blog post, I explored one of the most widely utilized processes in businesses globally, the Procure to Pay process, and illustrated how the system generates two distinct types of entries in the Vendor Ledger Entry table. These two transactions are interconnected, displaying a net balance of zero.
If you want to go deeper in details check these MS Learn lessons:
Receive and Invoice items in BC: Receive and invoice items in Dynamics 365 Business Central – Training | Microsoft Learn
Create purchase documents in BC: Create purchase documents in Dynamics 365 Business Central – Training | Microsoft Learn
Processing Vendor Invoices: Processing vendor invoices in Dynamics 365 Business Central – Training | Microsoft Learn
Suggest Vendor Payments in BC: Suggest vendor payments in Dynamics 365 Business Central – Training | Microsoft Learn
Use cash receipt wo process payments: Enter payments in the cash receipt journal and the payment journal in Dynamics 365 Business Central – Training | Microsoft Learn
You can check my Youtube video covering a hands-on example:
— Buy my book —
https://leanpub.com/BCLedgerEntriesInsights
Download pdf sample.
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