Working With NetSuite's Chart of Accounts
Anytime I meet a prospective or new client to discuss their Chart of Accounts (COA), I always set the president that NetSuite is an accounting system first and foremost. This means everything starts with establishing a good COA.
By this I mean, Inventory, transactions, customers, suppliers etc can all be built on the back of a good COA. For example, when setting up items you have default income accounts, COGS (Cost of Goods Sold) and expense accounts, when it comes to transactions and entity records you can set up default payable accounts, and receivable accounts. By having these in place and set up correctly it will help your business establish a firm foundation on which to build their system.
NetSuite COA is built through a structure of parent-child relationships, therefore it can be simplified and structured in a way that, when it comes to reporting, you will automatically have an account structure that fits with your business reporting structure. The Payables are in the right place on the balance sheet, the COGS accounts sit right on the P&L and are structured in a way that sub-accounts role up to the summary account.
See below for examples
As you can see these examples show as parent-child accounts where the child accounts role up into the parent accounts to give a total figure for each type of account. These structured accounts that have been thought out and specifically grouped to show correctly on their monthly management reporting pack. This has meant there has been no need for report customisation. This was achieved by a well thought out methodical approach to their COA before it was ever created in NetSuite.
There are several key areas to think about when creating a COA for NetSuite:
- Account Number structure - Leaving room for expansion and the ability to add to the COA.
- Account Name – giving the account name a naming convention is often useful and this can be achieved by the name as well as the parent-child relationships.
- Sub-account of – this is where the parent-child relationships are built, and the naming convention is built up. An example of this is:
- Parent Account: Sales
- Sub-Account: Gym Membership
- Sub-Account: Off Peak
- This then gives the account name for Off Peak gym memberships – Sales: Gym Membership: Off Peak
- Account Type – NetSuite has several account types (Income, COGS, Expense, Equity) that are applied to each individual account. This determines the accounting impact it has on the account (is it a debit or credit) and therefore inputs the values correctly into a double entry accounting book. This also helps determine where the accounts sit within the reporting pack that NetSuite provides and can limit the amount of customisation required.
- Subsidiary – if your company is multi-subsidiary the COA within NetSuite supports the fact that you need to manage your accounts across the subsidiaries but also allows you to have subsidiary specific accounts. This allows users to have access to all accounts when working within a specific subsidiary but also restricts them from accessing accounts when working within a different subsidiary. This can help minimise data being input incorrectly but also minimises the number of unnecessary accounts when working with subs.
The foundation of a NetSuite system is the COA, get that bit right and everything within the system, your day to day use of the system and the output of reporting will become more efficient and effective in delivering you a smooth software experience.