HOW TO EFFECTIVELY USE NAV FOR EMPLOYEE CASH ADVANCES

Overview

In any business solution implementation, it is crucial for consultants to first gather and fully understand customer requirements in order to comply with any statutory and regulatory requirement like accounting standards. Next would be how to translate these requirements using Microsoft Dynamics NAV. One interesting topic I have encountered during business process reviews is on employee-related transactions, specifically cash advances that are subject for liquidation.

A consultant can always come up with different proposed business solutions and ideas on how to use Microsoft Dynamics NAV to record this type of transaction from setup to settlement. Some might propose employees should be recorded as customers or as vendors or both. Then use payment journals to setup receivable or payable and then use other journals to record liquidation and reverse receivable or payables. Needless to say, there are all sorts of processes.

What most non-accounting consultants tend to overlook is the fact that with any business solution, the focus should not only be on the boundaries of the system but more importantly, it’s capability in complying with regulatory and statutory requirements such as accounting standards.

As an Accountant , NAV user and consultant, I always look into a combination of applying the accounting standards first, then executing my solution using the different NAV functionalities and lastly, coming up with a workaround in case of a gap.

In this post, I am sharing with my fellow consultants a proposed solution I implemented to one of my clients who is in fact satisfied with the guaranteed accounting and process outputs in terms of employee’s cash advances subject for liquidation.

Definition
In the normal course of business, cash advances are given to employees as a temporary fund support to a specific operational requirement for which issuance of a purchase order would be impractical. As a general rule of thumb for accounting, cash advances are recorded as part of receivables and which they have to be liquidated or settled subsequently through submission of receipts as proof of incurring the expense, collecting excess cash or reimbursing the employee for the excess expense incurred on top of the cash advance received.

Nav Functionalities And System Setup
Transactions that involve setup of receivable for cash advance issued and its liquidation will use functionalities of NAV like Purchase Order, Purchase Invoice, Payment Journal, Cash Receipts Journal and Purchase Prepayment.

To ensure correct accounting entries are made when posting transactions in NAV, the following setups are required:

  1. Chart of Accounts. Apart from the usual chart of accounts for both balance sheet and income statement, the G/L accounts below should also be created:

No.

Name

Income/Balance

Account Type

Direct Posting

Reconciliation Account

Gen. Posting Type

Gen. Bus. Posting Group

Gen. Prod. Posting Group

VAT Prod. Posting Group

1110

Cash on hand

Balance Sheet

Posting

Yes

Yes









1600

Rec’ble from employees

Balance Sheet

Posting

No

Yes

Purchase

EMPLOYEE

GL



3196

Payable to employees

Balance Sheet

Posting

No

Yes

Purchase

EMPLOYEE

GL



7361

Any expense account

Income Statement

Posting

Yes

Yes

Purchase

DOMESTIC

GL

VAT12

Note:

a. Cash on hand account will be used to record excess cash from cash advance.

b. Rec’ble from employees account will be used in general posting setup as Purchase Prepayments Account.

c. Payable to employees account will be used as vendor posting group for employees which will be created as vendors.

  1. General Posting Setup. The following general posting setup assumes that purchase lines associated with employee’s cash advances will only have G/L account types.

HI Arnold,

This is the same as what I have proposed with one of my clients, where I used Employees as Vendors and assigned specific posting setup into G/L.

What if the client wants to trace specific input vat per vendor as reflected in the reference invoice, not per employee liquidating the advances thru vendor ledger entries, in compliance with BIR?

The input vat must be generated automatically using the vat posting combinations and must be assigned to their respective vendors, and not on employees (e.g. hotel accommodation, with Dusit Hotel as the Vendor subject for 12% Input VAT, and EMP001 as the employee).

Thank you very much.

We have also implemented the advance given to employees, but we have used them as dimension insted of creating them as vendor.

Hi Arnold,

Thank you for your comment. As what I have described in my blog for the setup of CA in NAV, it is specifically based on the assumption that a company has a policy where cash advance is only provided to employees where an issuance of a PO is impractical and where CA is only issued under specific threshold amount of a specific operational requirement.

Based on my experience as an accountant and as a consultant of NAV, there are still companies which do not have this written policy and procedures. As result, I always end up recommending changes in their process and related workflows where there should be clear policies and guidelines in providing CAs to employees as mentioned above.

So in the case of your example like hotel accomodation, since it is a transaction where the company wants to recognize input tax from the Dusit Hotel and the amount would be material in nature, then a Purchase Order should be issued to the hotel itself rather than providing a cash advance to the employee.

I hope you find my thoughts clear. :slight_smile: Mervin sends his regards to you. hehehe

Hi Manish!

Thank you for your comment.

I agree that dimensions can also be used but it is a case to case basis actually. Most likely, a company would want to monitor their advances to employees that shows only the outstanding or unsettled advances rather than the entire ledger entries of the dimension. Maybe for companies with less transactions on employee’s advances can adopt this approach. :slight_smile:

Thanks Arnold for your immediate reply. This is actually my first time dealing with a client who refuses to change their policy that way wherein only those transactions, as far as the materiality is concerned, that has little or has no impact with vat should be processed in cash advances.

I gave them the option to use the proper way of processing liquidation of advances in nav, that will not produce certain input vat per vendor, but would resolve in the traceability issue of as to whom (employee) liquidated the advances; or to have it the standard way of recognizing the expenses per vendor with certain input vat amount, whether using the PO or applicable journals.

Send my regards to Mervin, too, and also to Ms. Lanie :slight_smile:

Surely you can track the O/s advance, but yes it goes to the GL Entry at last to show up.

What you have suggested is not used by many companies, as vendor is part of B/S as payable which plays a role in the bussiness P&L.

So have you tried to get the outstanding balance of employee advance from g/l entry table that shows only the open entries?

Well we have given them analysis by dimension, which they are happy with.

But as said depends on company to company.