With any systems’ implementation, including Dynamics 365 Business Central, there comes a time where the closing balances from the legacy system become the opening balances in the new system.

This article explains various methodologies that are available for this stage of the implementation and explains the pros and cons of each.

The opening balances scenario

To set the framework – let’s say that we have the following balances/information to bring into the new system:

  1. Open Customer Invoices (Accounts Receivables)
  2. Open Vendor Invoices (Accounts Payable)
  3. Closing Stock Quantity and Cost Value (Inventory)
  4. General Ledger Balances (The closing balances of all the G/L accounts. The total balance must follow the accounting equation, which is Assets = Liabilities + Equity)

The items #1, 2 & 3 on the list above have their own sub-ledger as well as the total represented by the G/L account.

This means that the balances in these control accounts may double up, as these accounts will be affected once for the sub-ledger import then for the G/L balance import.

The objective is to create the sub-ledger for customers, vendors, and stock, plus import all G/L balances.

When we import the sub ledger, it will impact the AR, AP & Inventory Control accounts. The balances of these accounts will also be included in the G/L balance otherwise the accounting equation will not be balanced. 

This means that the balances in these control accounts will double up as these accounts will be affected once for the sub-ledger import then for the G/L balance import.

There are two ways to work around this problem, both with their advantages and disadvantages:

Option 1. Create a new G/L account as a balancing account

In this method, a new G/L account is created (let’s call it a suspense account). When subledger balances are brought in, the balancing side is posted to this suspense account.

When G/L balances are brought over, the balances in the control accounts are also sent to the suspense account, bringing the balance back to zero.

Option 2. Use the same control account as the balancing account

In this method, the balancing entries for the sub ledger are also sent to the same control account.

This means that when the sub ledgers are imported, the G/L balance in the relevant control G/L accounts will still be zero. The G/L balances can then be brought over as per normal.

The pros and cons of creating a new G/L account as the balancing account

Let’s say that the new G/L account is called “Suspense Account”. Here is how the sub ledger balances will be brought over:

  • For each invoice on the Customer AR: Debit Accounts Receivables/Customer Ledger, Credit Suspense Account
  • For each invoice on the Vendor AP: Credit Accounts Payable/Vendor Ledger, Debit Suspense Account
  • For each stock entry: Debit Inventory Account/Inventory Ledger, Credit Suspense Account

When bringing in the G/L balances, the AR, AP and Inventory balances will be posted to the Suspense Account, making it back to zero.

This method gives complete control and validation of the balances and is my personal favourite. If there are any reconciliation differences between sub ledger and the G/L account balance, the balance in the suspense account will not become zero and will force the reconciliation.

Unfortunately, the G/L account may never be used again and will just use up space in the any accounts based reports.

The pros and cons of using the same control account as the balancing account

Using this method, this is how the entries will look like:

  • For each invoice on the Customer AR: Debit Accounts Receivables/Customer Ledger, Credit Accouts Receivable G/L account
  • For each invoice on the Vendor AP: Credit Accounts Payable/Vendor Ledger, Debit Accounts Payable G/L account
  • For each stock entry: Debit Inventory Account/Inventory Ledger, Credit Inventory G/L account

The balances in these control accounts will be zero and you can easily bring in G/L balances without any need to create a separate G/L account.

The advantage of this method is that there is no need to create an extra G/L account but the disadvantage is that extra entries (the balancing ones) are posted to the same account, making it very hard to read if you need to refer to the opening balance entries.

What we found works

We generally use Method 1 and find that it helps encourage the client to make sure that their balances are reconciled and accurate and there are no issues in the future.