Fund Accounting in Dynamics 365 Finance and Operations

Introduction

Fund accounting is a business process for non-profit organizations and government entities. It provides a detailed account of income and expenditure, ensuring transparency and accountability in business. We can track funds effectively, maintain regulatory compliance, and make informed financial decisions. In a fund accounting approach, all income is dedicated to a particular purpose, and each purpose determines the specific types of funds.

Fund Accounting in Dynamics 365 Finance and Operations

Benefits of Using Dynamics 365 for Fund Accounting

  • Automation: Automate tasks in fund accounting, such as data entry, calculations, and report generation, which eliminates errors and provides accuracy.
    Customizable
  • Workflows: Customizable workflows streamline fund accounting processes without delays.
    Centralized Data
  • Management: All fund accounting data is stored in a centralized system, making data management and access easy.
  • Complete Audit Trail: Maintains a complete audit trail of all transactions, ensuring accurate tracking and reporting of funds.
  • Enhanced Security: Only authorized individuals can access sensitive financial data, helping to prevent fraud and misuse of funds.
    Efficient Financial
  • Management: Manage financial processes for expense allocation and fund accounting based on specific requirements.
    Time and Effort Reduction: Using Dynamics 365 for fund accounting reduces time and effort, providing accurate results without delays.

Implementation Steps for Fund Accounting in Dynamics 365

  • Create Financial Dimensions: Create a financial dimension for funds, which will be used to signify each fund separately.
  • Update Account Structure: Add funds to the account structure and update the ledger setup accordingly.
  • Post Transactions: Post transactions using fund dimensions and review them.
  • Generate Reports: Generate a Balance Sheet and Income Statement for each fund dimension.

Setups & Configurations for Fund Accounting in Dynamics 365

To process fund accounting effectively in Dynamics 365, you need to complete several setups and configurations.

Here’s a step-by-step guide

Set Up Fund Types

First, we need to create fund types

Navigating to General Ledger > Chart of Accounts > Funds > Fund types.

Fund Accounting in Dynamics 365 Finance and Operations

Here we create fund types like grants, community funds, agency funds…etc. and give a description of fund type.

Set Up Funds

After creating fund types, we need to create funds using fund type and fund class.

Navigating to General Ledger > Chart of Accounts > Funds > Funds.

  1. Here we give fund a number and name (description). This fund number will be used as the financial dimension.
  2. Select a Fund type and Fund class.
  3. Fund types are defined as necessary for business needs as we created earlier.
  4. The fund classes are pre-defined in Dynamics, we choose the fund class accordingly.

Following Fields are enabled based on the fund criteria and for Fund record control Year end processing.

Set Up Financial Dimensions

Create a new dimension, using values from Funds and activate it.
Navigate to General Ledger > Chart of accounts > Dimensions > Financial dimensions.

Configure Account structures.

After Fund dimension is activated create account structure using fund dimension. Navigate to General Ledger > Chart of accounts > structures > configure account structures.

Ledger

Once the account structure is activated, you must update the Ledger configuration to indicate the dimensions that should be always balanced.
Do this by navigating to General Ledger > Ledger setup > Ledger

Select the funds dimension in the ‘Balancing financial dimension’ field.

The account structure does not allow blank values in the dimension selected for balancing.

And give required fields in Ledger form.

Accounts For Automatic Transactions

For balancing vouchers at fund dimension level, the system must be set up to use specific accounts for the ‘interunit’ accounting.

Let’s, Consider interunit as intercompany accounting but within one legal entity. Dynamics will use the accounts set up for interunit accounting to create additional voucher lines which will cause the voucher to balance at the proper dimension level.

For example, a vendor invoice that is posted to multiple funds is offset to Accounts payable automatically. The system will add voucher lines to debit and credit the interunit accounts by fund dimension so there is a payable and a receivable created between the ‘funds. Accounting will settle the Accounts receivable and Accounts payable between funds with a Cash entry, in the same way intercompany receivables and payables are settled.

Navigate to General ledger > Posting setup > Accounts for automatic transactions.

Process

So, now let’s create vendor Invoice journal using multiple fund dimensions which we have set up.

We can review the voucher

We used multiple funds for posting transactions. So, the ‘interunit’ account lines appear in voucher transactions.
In the same way we can post any transactions in respective modules using funds.
Using dimension sets we can check trail balance

The process explained above is how fund accounting is processed without budget funds. If we want to process fund accounting with Budget funds, certain configurations are needed to fulfill.

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