Vendor Reconciliation in Dynamics 365 Finance and Operations

RECONCILIATIONS IN DYNAMICS 365 FINANCE AND OPERATIONS

Reconciliation is essential to ensure the financial impact of transactions is accurate. This article provides a detailed overview of the different types of reconciliations available in Dynamics 365 Finance and Operations.

Let's get started.

CONTENT Introduction Reconciliation types Demo - vendor reconciliation Conclusion

INTRODUCTION

In Dynamics 365 Finance and Operations, reconciliations help verify that transactions are recorded correctly across the General Ledger (GL), subledgers, and external systems, such as bank statements. By ensuring consistency and alignment, reconciliation plays a key role in financial reporting, compliance, and operational efficiency. This article explores the various reconciliation types available in D365FO, providing insights into their purpose, processes, and practical applications.

RECONCILIATION TYPES

INTERNAL RECON

Internal recon: Ensures ERP's consistency and validates subledger and ledger consistency. These are D365 Finance reports.

• Vendor to ledger recon
• Customer to ledger recon
• Bank to ledger recon
• Potential conflicts - inventory and general ledger

The main objective is to ensure that no ledger accounts used in posting profiles are directly impacted by journal entries. In other words, there should be no discrepancies between the subledger and the general ledger. If differences arise, it indicates that General Journal entries were posted to main accounts linked to subledgers. To mitigate this issue, an ITAC control can be implemented by enabling the "Do not allow manual entry" field in the Chart of Accounts.

General ledger >> Chart of accounts >> Accounts >> Main accounts

EXTERNAL RECON

External recon: Ensures ERP and external system's consistency and assist reconciliation of ERP and external parties.

• Vendor recon: This recon is between you and your vendors to make sure that outstanding balance in the system is correct.
• Customer recon: Similarly, this recon is between you and your customers/clients to make sure that outstanding balance in the system is correct.
• Bank recon: This recon is between you and your bank to make sure that bank balance in the system is correct.

RECON METHODS

Recon methods: You can use different approaches to ease your reconciliation process.

• Manual reconciliation: Requires manually pulling data from D365FO and processing it on Excel. This approach requires deep understanding of which reports and transactions to analyze. This approach is tie consuming and open to human error.
• Automation within D365: This approach contains built-in reports and inquiries. It's a quick and easy method to identify mismatches between GL and subledgers. This approach reduces manual effort.
• Autonomous via Agent: A new capability that automates the comparison of financial transactions. D365FO identifies differences and highlights mismatches for review.

TOOLS

Selecting the right tools for reconciliation is essential, as different tools offer distinct capabilities to support accuracy, completeness, and efficiency. If standard D365 Finance reports confirm no discrepancies between the ledger and subledger, no further action may be required. However, if additional investigation is needed to validate report completeness and accuracy, supplementary tools can enhance the reconciliation process.

• D365 Finance Reports: Provides built-in validation for ledger and subledger consistency.
• Excel: Allows for custom analysis and detailed reconciliation outside the system.
• Excel + Autonomous Agents: Enhances reconciliation efficiency by automating data extraction and comparison.

Organizations should evaluate the most appropriate tools on their reconciliation complexity, reporting needs, and available automation capabilities.

Let's deep delve into vendor reconciliation.

DEMO - VENDOR RECONCILIATION

This section focuses on vendor reconciliation within Dynamics 365 Finance and Operations (D365FO).

The objective is to verify whether vendor transactions align with ledger transactions and identify any manual journal interventions that may have affected vendor transactions.

The reconciliation logic ensures that vendor transactions and ledger transactions remain consistent.

Step 1: Retrieve Vendor Transactions

Let's take a look at the vendor transactions first.

Navigate to Accounts payable >> Inquiries and reports >> Vendor transactions report

Apply the required filters, including a specific date range.

Run the report and review the output.

Report output as shown below. The next step is to convert this output to a workable format for further calculations.

Export the report to Excel for further analysis.

Analyzing Vendor Transactions

Open the exported excel file.

Scroll to the bottom of the report to locate the total debit and credit amounts for all vendors within the selected date range.

Calculate the total vendor balance.

For this example, the total vendor balance is $85,670.78.

Let's take a look at the ledger transactions now.

Step 2: Retrieve Ledger Transactions

Navigate to General ledger >> Inquiries and reports >> Voucher transactions

On next page, apply the required filters, including the relevant/targeted ledger accounts to be included in the report.

How to Identify the Relevant Ledger Accounts? 

The accounts to be included are all ledger accounts used in the Vendor posting profiles. These accounts determine how vendor transactions are posted to the general ledger.

Run the report and review the output. Report is as shown below. Export the report to Excel for further analysis.

Analyzing Ledger Transactions

Open the exported Excel file.

Summarize the Amount column to calculate the total ledger balance.

For this example, the total ledger balance is $85,670.78.

Step 3: Validate the Reconciliation

Since the total vendor balance ($85,670.78) matches the total ledger transactions balance ($85,670.78) for the selected date range, the reconciliation is successful. This confirms that vendor transactions are accurately reflected in the ledger without any discrepancies caused by manual interventions.

Simplified Reconciliation: Vendor to Ledger Reconciliation Report

Is there a more efficient way to perform vendor reconciliation without manually comparing reports? Yes!

D365FO provides a built-in report that directly compares vendor balances against ledger balances, eliminating the need for manual calculations.

Generating the Vendor to Ledger Reconciliation Report: Navigate to Accounts payable >> Periodic tasks >> Vendor to ledger reconciliation report.

Apply the required filters, including a specific date range.

Run the report and review the output.

The report provides a direct comparison of total vendor balances and corresponding ledger balances. 

In this example, the total vendor balance matches the total ledger balance at $85,670.78, confirming that there are no discrepancies. Since the balances align, this verifies that vendor transactions are accurately recorded in the ledger and no manual journal interventions have caused inconsistencies.  This method provides a faster and more efficient way to verify vendor reconciliation without manually exporting and analyzing multiple reports.

CONCLUSION

Effective reconciliation is essential for maintaining financial accuracy and ensuring compliance in Dynamics 365 Finance and Operations. This article demonstrated the vendor reconciliation process, emphasizing both manual and automated approaches. While traditional reconciliation methods require exporting and validating reports, D365FO’s built-in Vendor to Ledger Reconciliation Report streamlines the process, providing a direct comparison of vendor and ledger balances.