Dynamics 365/AX Multiple Legal Entities Chart of Accounts

Deciding how to set up the Chart of Accounts is a foundational question that must be carefully thought out and planned in the early days of a Dynamics 365/AX implementation.  It becomes increasingly complicated when there are multiple legal entities involved in the implementation.  A clear understanding of the many components of the Chart of Accounts available in Dynamics AX will make the decision somewhat simpler.

When a shared Chart of Accounts is not a good fit for the organization, Dynamics AX has allocations, elimination, and multi-company consolidation available.

The Multiple Legal Entity COA functionality is available beginning in AX 2012

Dynamics 365/AX Components

To set a foundation for this discussion, let’s define the Chart of Account and its Dynamics 365/AX components:

Legal Entity – A Company in Dynamics AX which is assigned a Company identifier.

Ledger – Established for each Legal Entity to dictate and maintain fiscal periods, determine account structure to use, select COA, set accounting and reporting currency, and other legal entity defaults.

Chart of Accounts – List of main accounts used to establish a financial framework.

Main Accounts – Ledger Accounts and the rules placed around each account which can be facilitated by using templates during the set up process.  Main accounts can be used for Totaling and Sub-totaling as well as Financial Reporting, in addition to the more common Revenue, Expense, Asset, Liability and Equity types.

Account Structures – Rules that govern how the accounts and financial dimensions can be or must be used within that legal entity.  Multiple Account structures can be in effect at the same time, so there is great flexibility in what can be done with these structures.

Organizational Hierarchy – Used to demonstrate relationships in the organization that exist for a purpose, such as financial, reporting, policies or centralized processes.

Financial Dimensions – segments to be used with the main account, as defined in the Account Structure, to create the accounting string to be attached to financial transactions in G/L for purposes of reporting and analysis.

 

Legal Entity

From <https://blogs.msdn.microsoft.com/axsa/2014/06/12/planning-your-chart-of-accounts-in-ax-2012-part-1-of-7/>

Decision Time

Items to consider when deciding whether a separate Chart of Accounts is required for each Legal entity or if a Shared Chart of Accounts would be more beneficial:

  1. Are the Legal Entities defined properly?  Are the Legal Entities truly legal entities or could they be set up in some other way in the Chart of Accounts to achieve the required results?
    • If there are companies defined simply for purposes of internal reporting, organizational hierarchies might be a way to eliminate the need for some of the legal entities.
    • Consideration must also be given to transactions that will take place between and within the company organizations, to insure intra/intercompany transactions are properly captured.
    • It is recommended that financial dimensions are not used in place of creating Legal Entities, because financial dimensions cannot be used to satisfy all of the legal entity requirements (i.e. sales tax).
  2. Is financial reporting of any legal entity dictated by a Statutory Chart of Accounts
    • Some Governments dictate the Chart of Accounts to be used.  If the governing authority requires transactions, complete with drill down to the sub-ledger, to be posted at the dictated Chart of Accounts, a separate COA could be used.
    • Another option is to utilize financial dimensions and the fixed dimension function in Dynamics AX in lieu of having to set up a separate COA.
  3. Are the Legal Entities on the same partition, or instance of Dynamics AX?
    • A COA cannot be shared across the partition, therefore, separate COA’s are required in this case.
  4. Are all of the Legal Entities operating on different fiscal calendars and/or with varying currencies?
    • The fiscal calendar and currency set up for each legal entity is determined in the Ledger.  The ledger also defines the COA for the legal entity.  So legal entities can operate on different calendars and in different currency but share a COA.
  5. Not all of the Main Accounts can be utilized by all of legal entities.
    • The Dynamics AX relational Chart of Accounts includes the ability to override the main accounts at a company level.
  6. There are different requirements between Legal Entities in regards to the financial dimensions.
    • Each Entity has a Ledger and its own Account Structure (or structures), which is a set of rules that determine which dimensions are required and which ones are valid.

Set Up Ledger

  • Navigate to General Ledger -> Set Up -> Ledger
  • Select the Chart of Accounts to be used by the Legal Entity
  • Select the Fiscal Calendar to be used by the Legal Entity
  • Select the Accounting Currency
  • Select the Reporting Currency
  • Select the Default Exchange Rate type
  • Select the Budget Exchange Rate type
  • Select a main account for each Posting Type
  • Close

AX 2012 R3:

Set up ledger ax 2012

Dynamics 365:

set up ledger dynamics 365

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