Why is revenue posted with a minus in the General Ledger of D365FO (or AX)?

This is a question I get a lot: why is the positive revenue (income) in D365FO posted with a minus in the general ledger?

In this article I try to explain the bookkeeping principle behind it. I use my own words as much as possible when trying to to prevent too much 'technical bookkeepping definitions'. I hope it clarifies why D365FO presents revenue with a minus. Also I show you some options how D365FO handles this general ledger debit / credit principle in common.

The definition of 'Credit'

When it comes to the definition of 'credit', there are several meanings you can think about. For example:

1. You borrow money and you will repay this including interest, you have a credit then (think about credit card).

2. Your paying position as company (think about credit ranking or credit limit).

3. An opposite of a normal invoice (think about credit invoice).

4. Using a bank guarantee document for payment of a purchase or selling (think about letter of credit).

5. The right side of the bookkeeping balance.?

In this article I focus on the definition regarding the bookkeeping balance in relation to D365FO.?

The bookkeeping principle

When it comes to bookkeeping, the core is the following formula about the financial situation of a company:

Assets = Liabilities + Owner's Equity

But then we are already in the 'bookkeeping terms'. So I try to describe the purpose of this formula in my own words:

What is the value of assets that the company own and are these assets financed / realized by shareholders equity (own money) or by liability (debts by others)?

The value of the assets and the value how they are financed / realized is always equal. This is why it is called 'Balance', because these both amounts must be in balance.

An example:

I start a company and put € 1.000 from my own money on the company bank account. The balance now is:

My company asset value, the money on the company bank account = € 1.000

How this is financed with my own equity = € 1.000

To structure this balance, the amounts will be presented on two sides: the left side (debit side) and the right side (credit side). On the debit side you present your asset values, on the credit side how this is financed. With my example above:

So the credit side isn't meant as negative here, but as clarification how I came to a bank value of € 1.000. This is what I meant above with how it is financed / realized.

A bigger balance

Of course this is a very simplistic example, but also a bigger balance is always 'in balance'. Look in the following example of a balance sheet to the ending amounts of $ 89.239 on the left (debit) side and the right (credit) side for the year 2004:

Also in this bigger balance sheet the core question is: what is the value of the assets (debit side, that what the company owns) and how is this financed / realized (credit side).

Daily business and the effect on the balance

By doing daily business the value of assets of the company changes. Because when you for example receive purchased items you will have extra inventory value (debit side) but also a debt to the vendor to pay (credit side). So in this simplified example the vendor debt on the credit side clarifies the extra inventory value on the debit side. By each transaction you make the ratio between the assets value and the way they are financed.

And I come closer to the revenue posting. Because the basic rule is:

The asset value (the value of what your company owns) is presented on the debit side. So when this value increases, it must be debited.

The way how these assets are financed is presented on the credit side. So when this value increases, it must be credited.

When you invoice a sales order, the debit side of the balance increases. Why? Because you invoice a customer, which means that the customer has to pay you. And you own this invoice value as an asset, because the customer will pay you that amount. So the debit side will be increased.

Because of the fact dat you increase the debit side, you have to post on the credit side the clarification of this increasing. And revenue is the clarification of the customer invoice asset on the debit side. So on the credit side you have to post the revenue amount as an increase because this is the clarification of the increasing on the debit side.

Summarized

In bookkeeping every entry must be in balance. Your assets (that what you own) are presented on the debit side and the clarification of how these assets are financed is on the credit side. Based on the fact that revenue clarifies your customer assets (because the customers will pay you that amount), the revenue is posted on the credit side as justification of the increasing of your asset value.

It is not so that credit means minus in bookkeeping. But to divide the debit and the credit posting, D365FO is using the minus to show you what is posted credit. So everything posted without the minus is a debit posting and everything posted with a minus is a credit posting.

How can I see this in D365FO?

Each voucher in D365FO must be in balance (debit and credit total amounts must be the same). If you don't have an equal voucher between debit and credit, the system will stop you and the posting will not continue:

Based on the error message above you can see that the credit amount is $ 100 and the debit amount is $ 75. This is not in balance, so D365FO will not post it. This is because it will generate financial mess if it would post this, because then imbalance will occur. And that means a difference between the value of what you own and the clarification of it. And that's not possible.

So if you ever hear of customization that will overrule these kind of bookkeeping principle checks, STOP and DO NOT CONTINUE. I can't emphasize enough how dangerous that is.

In journals of D365FO you can see already if the voucher is in balance before you post:

When the debit and credit amount are the same, the balance will be zero. If the voucher or journal has a balance value, you can't post until you created the balance.

Debit and credit in a voucher

In each posted voucher the total debit and credit amounts are equal. In the voucher you will see the credit amounts posted with a minus in the column 'Amount in transaction currency':

In the column 'Amount' the debit postings are presented on the left side and the credit postings are presented on the right side, just as on the balance sheet that I presented above:

Even if it is logical from financial perspective to post revenue on the credit side, presenting revenue with a minus may look weird in for example reportings. Because you don't make a sales manager happy by presenting a revenue of € -/- 100.000,-. Because this looks like negative revenue.

This is also the reason why in Financial Reporting in D365FO you have the option to 'reverse sign' in the Row definition (Column F):

By using the C (reverse sign), you will translate a credit posted amount into a debit presentation on the report. This means that revenue will be presented as a positive amount then. When you enter main accounts from main account type 'Revenue', this reverse sign will be added automatically. I have written more about that in this article about all main account types in D365FO.

I hope that with this explanation will help you to understand why revenue is posted with a minus in D365FO and how you can see back the debit and credit posting sides in the vouchers.