In the world of financial management, everything leans on a well-structured chart of accounts. It plays a pivotal role in driving clarity and organization. As your business expands and financial data multiplies, having a robust system in place becomes paramount.
When you move over to NetSuite you will need to either create or replicate your chart of accounts. By using these NetSuite chart of accounts best practices you will set your company up to gain invaluable insights, streamline reporting processes, and make more informed decisions.
Think of the chart of accounts as a compass, guiding you through the intricate landscape of income, expenses, assets, and liabilities. In this article I will walk you through 5 NetSuite chart of accounts best practices to help you craft that compass in your system.
What is a Chart of Accounts?
A chart of accounts is a fundamental component of any financial accounting system, including NetSuite.
It serves as a structured list of all the accounts used to record financial transactions within an organization. Each account represents a specific category or type of financial activity, such as assets, liabilities, equity, revenue or expenses.
The chart of accounts provides a framework for organizing and classifying your financial data. It consists of a series of unique account codes and descriptions that help identify the nature and purpose of each account.
In essence, the chart of accounts acts as a roadmap for financial transactions, ensuring that every transaction is assigned to the appropriate account. It provides a standardized structure for capturing, categorizing, and summarizing financial information, giving the ability to generate financial statements, analyze performance, and meet regulatory reporting requirements.
The accounts within your chart of accounts will vary depending on the nature and complexity of the organization’s operations. The specific accounts and their organization can be customized to suit the unique needs of your business. One of the things we will look at here is how you can make smarter decisions on the creation and categorization of your unique accounts.
Creating a Chart of Accounts in NetSuite
Most of you looking at NetSuite chart of accounts best practices are probably yet to create your chart of accounts or you are still in the process. For this reason I will start from the very bottom.
Even if you already have your chart of accounts loaded you will still benefit from this information so do not skip over it. There are points here that will answer some of questions about your current structure and provide insight on how you can improve things from the ground up.
First and foremost, navigate to Setup > Accounting Preferences and ensure that Use Account Numbers is checked.
I honestly can’t think of a scenario where you wouldn’t want to display account numbers for your ledger accounts in lists and reports. This should be your primary identifier and the name, secondary.
You will then want to ensure that all accounting features you plan on enabling are enabled.
Features such as Accounts Receivable and Accounts Payable will create system generated accounts. These accounts will need to be merged with your preferred chart of accounts. You want to make sure they are generated before you complete your import.
System Generated Accounts
The following is a list of features and their associated, system generated accounts. This list is not exhaustive.
|System Generated Account
|Advanced Revenue Management
Deferred Revenue Clearing
Revenue Arrangement (non-posting)
|Automated Intercompany Management
|Credit Card Payments and Customer Access
|Unapproved Customer Payments
|Direct Deposit / Electronic Funds Transfer
|Failed ACH Transactions
|Employee Commissions / Partner Commissions/Royalties
|Unapproved Expense Reports
|IC Netting Clearing Account
|Inbound Shipment Management
|External Inventory In Transit
Cost Of Goods Sold
|Job Costing and Project Budgeting
Job Cost Variance
Inventory In Transit
Unrealized Matching Gain/Loss
Rounding Gain/Loss accounts
|Failed ACH Transactions
|Customer Payment Authorizations
|Vendor Return Authorizations
|Vendor Return Authorizations
Purchases Returned Not Credited
To complicate things, some of these accounts are only generated after an eligible transaction is triggered. Regardless, the sensible approach is to enable these features before the next step to minimize the additional work you’ll have to do further down the line.
Import Chart of Accounts
The next step it to prepare a CSV file of your new chart of accounts and import it in to NetSuite.
This file will state the account numbers, names and hierarchy of your new chart of accounts. Navigate to Setup > Import/Export > Import CSV Records to upload your file.
For full step by step instructions on how to generate and import this file follow the instructions in this article.
When preparing this file you need to check the five NetSuite chart of accounts best practices listed in the next section.
Merge System Generated Accounts
The final step to creating your chart of accounts is to merge the system generated accounts with your new imported structure. What I mean by this is replacing some of your new, imported accounts with some of the system generated ones.
There are two reasons you will want to do this –
- Some of these system generated accounts cannot be replaced – this means even if you have created a replacement, the system will still make postings to it’s original preference. You want those transactions to show in the right place on your financial statements so it is best merge to them with your new structure
- Some of these system generated accounts cannot be deleted even if they have never been used and will never be used. Keep a tidy system and simply merge them with your new structure rather than leave them lying around and inactive.
To merge these accounts, first find their equivalent in the new imported structure. Delete the new equivalent account. Now rename and renumber the system generated account to take the place of your recently deleted account.
Do this for as many of the system generated accounts as you can. The remaining accounts should then be numbered to slot in to your new structure. If you do not do this they are not going to appear in the correct part of their respective financial statements.
5 NetSuite Chart of Accounts Best Practices
When preparing your import data there are a few things you want to keep in mind. The following NetSuite chart of accounts best practices, when applied, will help towards a logical, scalable and easily navigated chart of accounts.
If you have already set up an account structure these best practices can still be used to amend and refine your current set up. It’s not too late but care should always be taken when editing, moving or inactivating accounts that are live or have been used before.
|If you are going to make changes to your current structure, do this at month end so you have a clean change over from one accounting period to another.
Hierarchical Structures and Sub-Accounts
One long list of accounts is hard to look at and difficult to display in your financial reports. Make everyone’s life easier but using a hierarchical structure.
Include header, or summary, accounts and group like accounts beneath them.
In the example above we have set accounts 20010 and 20020 as sub accounts of 20000. On the balance sheet report we can choose to view the breakdown of account balances or roll up to the header level. This structure also keeps things grouped in the right place when viewing the account list and trial balance.
You will notice that in the first column Summary is set to No. If we had made this a summary account then instead of having transactions post to it directly, it would display the total balance from it’s sub accounts.
Segmentation and Classifications
Utilize NetSuite’s classifications and segments to streamline your chart of accounts and improve your ability to slice financial datasets from it.
If you are new to NetSuite then the above sentence likely makes very little sense. Here is an example:
If you have a number of different income streams that you need to be able to pull out in reporting, you will be tempted to set up individual accounts for each.
Whilst this solution works, it makes for a very large chart of accounts, a complex structure and fewer individual data points to report on.
NetSuite offers three standard classifications; Department, Location and Class. These are essentially labels that can be assigned to transaction [lines]. Users can than filter or split reports based on those classifications.
In the example above we could use the Class classification to dictate the sales class – Hardware, Software, Contracting, Accessories etc. We could then use the Location classification to indicate which region the sale was made. This would allow us to use one Sales account but still give us the ability to pull out detailed and meaningful data.
The Custom Segments feature allows you to set up further segments beyond the three standard ones mentioned above.
Consistency and Uniformity
Create a scalable and logical numbering convention and remember to stick to it. Some countries’ authorities dictate a standard numbering convention but if you are living in the free world you need to develop that system yourself.
Consider scalability when you are formulating your numbering. If X account is numbered 12000 and Y account is numbered 12001 then you will not be able to place an account between them without extending your numbering format. Think about future scenarios when numbering your accounts.
You should take a similar approach to your account names. Develop rules around how accounts should be named to ensure consistency across the chart of accounts.
Account Descriptions over Lengthy Names
Try to avoid long, descriptive account names. You are limited in the standard account name field to 60 characters anyway but you still want to keep the names short and abbreviated if possible. This will keep your lists and reporting looking tidy.
Use consistent abbreviations across your accounts such as IC for intercompany and FX for foreign exchange.
Utilize the the Description field to give more detail on the purpose of the account if needed.
Global Chart of Accounts
In OneWorld environments you can, and should, use one global chart of accounts. Individual accounts can be live for one or all subsidiaries. Try to avoid setting up subsidiary specific accounts to avoid complications with your consolidated reporting.
If one of your subsidiaries has a standard chart of accounts it needs to use dictated by the authorities, you can use the Accounting Context feature. This feature allows you to change the number and name of an account depending on the users preference. An Accounting Context filter is added to financial reports to allow either naming and numbering system to be used.
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