Legal entities, chart of accounts and financial dimensions
Dynamics 365 Finance records every transaction against a legal entity, a main account and a set of financial dimensions. The exam checks whether you know the order of setup and which element does what.
Start with the legal entity
A legal entity is a company that has its own legal and tax responsibilities. It owns the ledger, accounting currency, fiscal calendar, customers, vendors and transactions. Create it first. Other structures, such as operating units, are organizational helpers and do not replace it.
Ledger and chart of accounts
Each legal entity links to one ledger. The ledger uses a chart of accounts, which is a list of main accounts. Main accounts have a type that decides how they behave in reports:
| Type | Used for |
|---|---|
| Assets, Liabilities, Equity | Balance sheet |
| Revenue, Expense | Profit and loss |
| Total, Header | Report layout only |
Several legal entities can share one chart of accounts.
Financial dimensions
Financial dimensions are extra tags on a transaction, such as Department, Cost center, Project or Customer group. They give you analysis without creating thousands of main accounts. A dimension can come from a custom list, an entity (such as customers or projects) or a list you maintain yourself.
Together, a main account plus dimension values form the ledger account you see on a journal line, for example 601100-Sales-Retail.
Account structures and rules
An account structure defines the segments of the ledger account and which dimensions can be used with each range of main accounts. You can add advanced rules to make a dimension required or restricted for certain combinations. Account structures are then assigned to the ledger in Configure account structures.
Derived dimensions
A derived dimension is filled in automatically from another dimension. If each cost center belongs to one department, entering the cost center fills the department.
Dimension sets
A financial dimension set is a subset of main accounts and dimensions used for reporting and balances. Build it from the main account and the financial dimensions you want. Only values in the set are stored as balances, so reports on those combinations are fast.
Exam traps
- A legal entity comes first. A business unit or a project cannot be the starting point.
- The account structure controls validity of dimensions. The dimension set controls what is summarized for reporting.
- A derived dimension is automatic. A normal dimension is entered by the user.
- Chart of accounts and legal entity are different things. One chart can serve many legal entities.
Practice questions
Choose an answer, then review the explanation to check your understanding.
1. A services company starts implementing Dynamics 365 Finance. Which item must be created and configured first?
Show answer
Answer: B.The legal entity (company) is the foundation. Ledgers, currencies, calendars and transactions all belong to a legal entity.
2. Which two components are used when you build a financial dimension set?
Show answer
Answer: A.A dimension set is built from the main account and the financial dimensions you want to report on. Account structures control which dimensions are valid, not the set itself.
3. Finance needs to control which financial dimensions are allowed for which range of main accounts. What do you configure?
Show answer
Answer: A.An account structure defines the segments of the account and the dimensions and rules that apply to each range of main accounts.
4. A company wants a Department value to be filled in automatically from the cost center chosen on an order. What do you use?
Show answer
Answer: A.A derived dimension fills in other dimension values automatically from a primary dimension.