The transaction reversal 'Correction' option in the General Ledger parameters of D365FO (or AX)

In the General Ledger parameters of D365FO (or AX) you have the field 'Correction' available in the 'Transaction reversal' field group:

The difference between enabling or not enabling this parameter is how the ledger postings of reversals are managed in the general ledger. The options are the following:

Not enabled: when a voucher in the general ledger will be reversed, the debit amount will be credited and the credit amount will be debited.

Enabled: when a voucher in the general ledger will be reversed, the debit amount will be debited with minus and the credit amount will be credited with plus.

In this article I show both options and explain the differences regarding analyzing and reporting the outcome. Also I share about functionalities for Brazil and Mexico where you can update the ledger balances if you have done this postings and need to correct them corresponding to the government requirements.

The parameter not enabled

In standard the field 'Correction' in the General Ledger Parameters will not be enabled. In the General Ledger I have made the following posting:

The next step is that I reverse this posting:

When the reversal is posted, the following postings are in the general ledger for the original transaction and the reversal transaction:

This means that quite the same way of posting is used, but opposite.

The parameter enabled

I will do the same posting in the general ledger, but now I will reverse with the parameter 'Correction' enabled. After posting the original ledger posting and posting the reversal the following postings are created in the general ledger:

What you see now is that not extra columns are used now (credit column for reversing the debit amount and debit column for reversing the credit amount), but the reversal is done in the same column as the original posting.

Analyzing and reporting

What's the difference of both options? The outcome of both ways is that you will end with balances of zero because of the reversal. But you can see the effect for example in the trial balance:

In the trial balance you only see the debit and the credit amount of the reversal where the parameter 'Correction' was NOT enabled. Because here for the debit amount a credit reversal is posted (debit 100 and credit 100) and for the credit amount a debit reversal is posted (credit 100 and debit 100). So both the normal posting and the reversal postings are posted with an extra opposite accounting.

You don't see the second reversal here where the parameter 'Correction' was enabled. Because for this debit 100 a minus debit 100 is posted (both together in the same column = zero) and for the credit 100 a plus credit 100 is posted (both together in the same column = zero).

When I click further on the value in the Debit amount column, of main account 112010 I see the original two transactions and one reversal:

And here you see the difference of both options. The reversal based on the parameter 'Correction' enabled is posted as a negative debit amount (so presented in the transactions of column 'Debit') and the reversal based on the parameter 'Correction' disabled is posted as a credit reversal amount (so not presented in the transactions of column 'Debit' but in the transactions of column 'Credit'.

So without the parameter not enabled you will see the reversed amounts in the presented debit and credit columns in the Trial balance. With the parameter enabled you won't noticed the reversals in the values presented in the Trial Balance.

The difference in the postings

If I select the Ending balance column of main account 112010 you can see the different way of postings the best in the column 'Amount' where debit transactions are posted left and credit transactions are posted right:

Also on main account 600150 you can see this difference of both reversal ways:

At the end the outcome in total is the same: both way of postings will reverse the original transactions and bring back the balances to zero. The difference is how D365FO will do this based on the use of debit and credit columns in the voucher transactions.

Accounts Receivable and Accounts Payable correction parameter

Also quite the same option is available in the Accounts Receivable parameter form:

And also in the Accounts Payable parameter form:

These parameters will create the same behavior for the ledger postings regarding credit invoices.

The parameter 'Reverse opposite sign amounts'

In some countries this way of accounting is not approved. For example in Brazil and Mexico the government requires that negative debit amounts will be displayed in the credit column and visa versa. If this is needed, in that countries the General Ledger parameter 'Reverse opposite sign amounts' can be enabled, which will also make sure that you can't enable the 'Correction' parameter anymore:

When you disable the 'Reverse opposite sign amount' option in that legal entity, you will be able to enable the 'Correction' parameter.

If want to use the 'Reverse opposite sign amounts' and already negative debits or positive credits are posted, you can use the 'Update opposite sign amounts' wizard to make sure negative debit amounts becomes credits and positive credit amounts becomes debits:

For example I have already a reversal which had created negative debit amounts and positive credit amounts:

Now I change the parameter settings and run the 'Update opposite sign amounts' wizard. The vouchers will be updated now into the required government standards:

Also the Accounts Payable and Accounts Receivable parameter 'credit note as correction' can be enabled but will not work if these General Ledger parameter 'Reverse opposite sign amounts' is enabled (that prevents this way of corrections).