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How to enter expenses for projects from another legal entity in Dynamics 365 Finance

Written by Tanya Iarve, Senior Consultant, D365 FO

A company with multiple legal entities is often faced with expense and accounting challenges. The good news is that Dynamics 365 Finance has tools built-in that can make solving such challenges as easy as point-and-click.

Today, we’re going to examine a specific challenge brought to our team by a client: entering expenses for projects done within one legal entity against another legal entity.

This de facto tutorial was created by Aragno’s Tanya Iarve, a Dynamics 365 Finance professional who has been supporting the business application needs of clients across the world for 20+ years.


There are specific steps to follow to setup your solution for entering expenses in Legal Entity 1 (LE1) for projects in Legal Entity 2 (LE2):

  1. Intercompany accounting (GL > Posting setup)
  2. Expense management > Setup > General > Expense management parameters > select the Allow intercompany expense lines check box.

  1. Project management and accounting > Setup > Project management and accounting parameters > Intercompany:
    • Toggle Enable intercompany resource scheduling and timesheets to Yes
    • Select a procurement Default category to use by default when recording costs for borrowed resources:

  1. Trading relationship between LEs: LE1 (where resources are employed) is a vendor, LE2 (borrowing LE, where the project resides) is a customer. This is setup on the corresponding customer and vendor records.

For example:

LE1 (USMF) – customer setup

LE2 (USSI) – vendor setup

  1. Project management and accounting > Setup > Posting > Ledger posting setup for Intercompany cost and revenue: define the ledger accounts that are used for posting the intercompany cost of loaned resources and the intercompany revenue received.
  2. Project management and accounting > Setup > Prices > Transfer price for project expenses:


After setup, the following steps should be taken when an expense report is entered in LE1 with charging a project in LE2:

  1. An expense report is created in LE1, a project in LE2 is charged. Submit, approve, post.
  2. Project management and accounting > Periodic > Project invoices > Create intercompany customer invoices in the LE1 – lending company. This step might be set as a batch job.
  3. The free-text invoices are generated in LE1 and visible Project management and accounting > Project invoices > Intercompany customer invoices. Review invoice lines, distribution, original documents are the expense reports.
  4. On the project in LE2, the transactions are listed on the Pending transactions list (on the project record > the Manage tab > Related information).
  5. Post Intercompany customer invoices. Invoice numbers are assigned to the free-text invoices in LE1.
  6. Review the invoice voucher.
  7. Pending project vendor invoices are generated in LE2.
  8. Review the project transactions under the Posted transactions list (on the project record > the Manage tab > Related information).

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