MS Dynamics 365 Accounting: All You Need to Know

Microsoft Dynamics 365 is far more than a simple accounting application; it is a unified cloud platform that seamlessly integrates finance, operations, and customer data. For businesses seeking a single source of truth, understanding this comprehensive tool is essential.  

This guide covers everything you need to know about Business Central accounting, exploring its powerful features, from sophisticated general ledger management to real-time financial reporting, to show how it delivers scalability and intelligent financial insights.

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Pre-Migration Setup: What to Configure Before Accounting in Business Central

Before transactions start flowing into the general ledger, Business Central must be structured correctly. This stage ensures smooth migration and prevents ledger inconsistencies.

Chart of Accounts (COA) Setup

• The Chart of Accounts (COA) is the foundation of your accounting system, providing structure for all financial transactions.
• Account categories, including assets, liabilities, equity, revenue, and expenses, should be defined to clearly classify financial data.
• Number ranges, such as 10000–19999 for assets, must be assigned to each category to ensure logical organization and consistency.
• Account subcategories should be created for management reporting to allow for detailed financial analysis.
• Account posting types need to be configured to appropriately classify transactions on the balance sheet or income statement.

Posting Groups

• Posting groups map transactions from sub-modules to the correct general ledger accounts, ensuring accurate financial recording.
• Key posting groups include customer posting group, vendor posting group, item and inventory posting group, bank posting group, and fixed asset posting group, each handling specific transaction types.
• These posting groups automate how sales, purchases, inventory, and asset entries are posted to the general ledger, streamlining the accounting process

Dimensions Setup

• Dimensions allow you to segment financial data without expanding your COA, making it easier to analyze financial performance. Common dimensions include department, location, project, region, cost center and customer group/vendor group, which provide detailed segmentation for reporting.
• You can define global dimensions, which are the two main dimensions, and shortcut dimensions, which allow up to right additional analysis layers for more granular insights.
• Dimensions play a critical role in driving analytical reporting, tracking profitability, and supporting budgeting processes.

Opening Balances Preparation

• As part of migration from another software, prepare general ledger opening balances, customer and vendor outstanding balances, fixed asset opening balances and accumulated depreciation, bank balances and unreconciled entries and inventory quantities and value
• Business Central uses journals such as the general journal, customer ledger journal, vendor ledger journal, FA journals, and item journals to record opening balances
• Accurate opening data is essential to ensure a smooth and clean transition between systems

Master Data Migration

• Clean and validate all master records, including customer, vendor, item, and unit of measure data, to ensure accuracy across the system.
• Ensure proper handling of quantities and conversions for consistency and correctness.
• Migrate customer, vendor, and item data carefully to maintain accurate records for smooth transactions and inventory management.
• Transfer bank account details with precision to ensure seamless financial operations.
• Ensure fixed assets, including asset details and depreciation records, are accurately migrated.
• Review and migrate tax groups and tax areas for correct tax calculations and reporting.
• Migrate payment terms, modes, and posting group assignments to ensure consistency in billing, payments, and accurate general ledger postings.

Financial Periods & Number Series

• As part of migration, configure the fiscal year to align with the company’s financial reporting cycle.
• set up accounting periods to define the time frames for financial reporting and transaction posting.
• Lock periods to prevent backdated posting, ensuring the integrity of financial records.
• Configure number series for invoices, journals, orders, and payments to maintain a consistent and organized transaction numbering system.

User Setup & Permissions

• Assign access based on roles, ensuring each user has the appropriate level of permission for their responsibilities.
• Roles such as accountant, business manager, AP processor, AR processor, inventory manager, and auditor/external accountant should be defined to match the specific needs of the organization.
• Use permission sets and user groups to maintain segregation of duties, ensuring that no single individual has conflicting responsibilities.
• Note that access for the auditor/external accountant role shall be granted based on the Business Central license.

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What are Core Accounting Processes in Business Central?

Business Central makes more sense when you see how its accounting processes connect. It starts with setting up your financial structure, then moves into the everyday tasks, AR, AP, reconciliations, tax entries, and month-end close. Each function builds on the last, supported by automation, accurate master data, and consistent workflows. Here’s how it all comes together inside the accounting process with Business Central.

Accounting for Sales

Accounting for sales involves the accounts receivable modules, which streamlines the entire order-to-cash cycle through the following functions:

• Creating accurate sales invoices, credit memos, and recurring invoices to ensure proper documentation and billing giving due consideration to correct COAs as per general posting group setup and dimensions
• Customer payments are applied to the appropriate invoices, ensuring that accounts are updated and accurate.
• Reminders are sent to customers with overdue invoices, helping to encourage timely payments and reduce outstanding balances.
• Customer ledger entries are regularly updated to reflect all transactions, ensuring a clear record of each customers financial activities.
• Aging analysis is performed to assess the status of outstanding invoices, categorizing them based on how long they have been overdue.

Accounting for Purchases

Accounting for purchases runs through the accounts payable module. This is where every vendor transaction is recorded and the full procure-to-pay cycle is managed, including:

• Purchase invoices are recorded in the system to reflect the amounts owed to vendors, including dimensions and correct COAs, as dictated by the general posting group setup
• Payments to vendors are processed via EFT, cheque, or manually, based on agreed terms
• Vendor ledger entries track all transactions, showing outstanding and paid amounts
• Vendor aging reports help track overdue balances and manage cash flow.
• Purchase transactions go through approval workflows to ensure proper checks before payment.
• A three-way matching process compares the purchase order, goods receipt note, and invoice for accuracy before payment.

Bank & Cash Management

Bank and cash management module ensures effective cash flow and bank reconciliation through the following key features:

• Bank account cards setup enables the management of multiple bank accounts within the system
• Automated or manual bank reconciliation ensures accurate matching of transactions between bank records and the accounting system
• Bank feeds setup allows for the automatic import of bank transactions directly into the system
• Cash receipt and payment journals record cash transactions to ensure accurate financial reporting
• Check ledger management allows for the organization and tracking of issued checks and related transactions
• Cash receipt journals are maintained to record all incoming payments, providing a detailed record of cash flow
• Bank feed integration is used to automatically reconcile the cash receipt journals with the actual bank transactions, improving accuracy and efficiency
• Cash flow forecasting provides a projection of future cash flow, helping businesses plan for upcoming financial needs

Fixed Asset Management

Business Central offers several ways to manage the complete fixed asset lifecycle, resulting in compliance and accurate asset valuation:

• Asset acquisition enables the recording and management of new assets as they are purchased or acquired; these are recorded according to the number series defined under the Number Series Setup
• Depreciation books (accounting, tax, IFRS) allow for the management of asset depreciation based on different accounting standards and tax regulations
• Disposal, sale, or write-off tracks the removal of assets from the books, whether through sale, disposal, or write-off
• Maintenance of cost tracking ensures that all costs associated with an asset are properly recorded and managed throughout its lifecycle
• Automated monthly depreciation posting simplifies the process by automatically posting depreciation entries on a monthly basis

General Ledger and Journal Management

To ensure a structured, accurate financial base, the General Ledger module manages data flow and journal entries through these keys, often automated, capabilities:

• Automated postings from sub-ledgers ensure that data from subsidiary ledgers is automatically transferred to the general ledger
• Journal entries through general journal template setup allow for streamlined journal entry creation using predefined templates
• Recurring templates, including recurring sales invoices, automate the creation of regular transactions such as recurring invoices.
• Multi-entity trial balance enables the management of trial balances across different business entities within the system.
• Financial reporting through account schedules allows for the generation of financial reports based on specific account configurations.

Reconciliation

Business Central makes reconciliation faster and cleaner across all core financial areas.

• Bank account reconciliation ensures that all bank transactions match with the general ledger and bank statements.
• General ledger account reconciliation helps verify that all general ledger accounts are balanced and accurate.
• Reviewing aging, balances, and variances before close provides a structured, repeatable process to ensure every balance is accurate before the period-end close.

Period-End Closing & Financial Reporting

The ultimate goal of period-end closing and financial reporting is achieved by performing these key steps, leading to accurate monthly and annual statements:

• Accruals and provisions ensure that revenues and expenses are recognized in the correct periods.
• Deferrals manage the postponement of revenue or expense recognition to future periods.
• Set up, manage, and precisely close accounting periods while strictly controlling posting dates for financial entries.
• Automate prepaid expenses and deferred revenue using deferral templates, revalue foreign currency balances (customer, vendor, and bank accounts), and create monthly accruals via recurring journals.
• Run Inventory Closing procedures (adjust cost – item entries and post inventory cost to G/L), generate core financial reports (trial balance, P&L, and balance sheet), and formally transfer profit/loss to retained earnings using the year-end close function.
• Reconciliation of ledger accounts ensures that all accounts are accurate and balanced before closing.
• Running consolidated financial statements combines financial data from multiple entities into a single, unified report.
• Power BI dashboards provide visual insights and analytics to monitor and interpret financial performance.

Tax Compliance

Business Central supports accurate, end-to-end US tax compliance with built-in sales tax handling and streamlined reporting.

• Setting up sales tax groups, jurisdictions, and tax calculation rules
• Automated sales tax calculation on sales, purchases, and multi-state transactions
• Applying correct tax treatment for taxable, non-taxable, exempt, and out-of-state items
• Reviewing sales tax exceptions, overrides, and rounding differences
• Preparing sales tax liability figures directly from the system for monthly, quarterly, or annual filings
• Managing employer-related tax data, including payroll tax outputs
• Tracking reporting periods and state-specific filing deadlines
• Exporting detailed sales tax reports for your CPA or state tax authority

Intercompany & Consolidation

For businesses operating with multiple entities, intercompany & consolidation in Business Central provides comprehensive support for:

• Intercompany transactions (sales, purchases, journals) allow for the management and recording of transactions between different business entities.
• Intercompany posting rules define how transactions between entities are handled in the general ledger.
• Group consolidation enables the merging of financial data from multiple entities into a single consolidated set of reports.
• Eliminations ensure that intercompany transactions and balances are removed from consolidated financial statements to avoid duplication.
• Reporting in multiple currencies allows businesses to manage and report financial data in different currencies across entities.

Work Smarter with a Business Central Accounting Professional by Your Side 

With the right accounting professional guiding your Dynamics 365 setup, the system becomes far more than a bookkeeping tool. You get cleaner reconciliations, tighter controls, accurate sales tax handling, and reporting you can trust at month-end and year-end. Instead of patching issues or working around system gaps, you operate with confidence, knowing your financials are accurate, compliant, and ready to support smarter decisions. 

At Whiz Consulting, our Microsoft Dynamics accounting services cover everything from daily bookkeeping and reconciliations to financial reporting, tax planning, and advanced financial oversight. We tune your Dynamics system to your business, strengthen every control, and standardize the way your team works. You end up with a high-functioning finance setup that stays compliant, produces dependable reports, and gives you more room to scale.