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NetSuite Chart of Accounts Best Practices and Guide
A chart of accounts is a structured list of accounts in a company’s general ledger that reflects its financial architecture. It serves as the foundation for their financial accounting system. If set up in a way that aligns with that architecture, the chart of accounts will be a key reference tool that helps make financial reporting, analysis, and overall financial management easier to achieve.
In this article, we will give you a more in-depth understanding of the chart of accounts in NetSuite and guide you through the basics all the way through to best practices. Here is a list overview of NetSuite’s chart of accounts best practices:
- Do it Right the First Time
- Use Meaningful Account Names (and Descriptions!)
- Use Parent-Child Relationships
- Be Consistent with your COA
- Conduct Periodic Review and Cleanup
- Consult with Experts
What Is a Chart of Accounts (COA) in NetSuite?
Before diving into the best practices, it is important that we walk you through the basics of NetSuite’s chart of accounts.
In NetSuite, the chart of accounts is at the core of the system. It plays a central role in managing most of the system's functional process areas. Being a dynamic ERP software, the key is that NetSuite allows for the chart of accounts to be structured in a way that meets the unique requirements of any business. It is critical that we understand these fundamental concepts as these will serve as your guide in building your chart of account structure within NetSuite.
To view the list of chart of accounts, navigate to Setup > Accounting > Chart of Accounts.
This will direct you to the chart of accounts table in NetSuite:
What is Included in the Chart of Accounts?
The chart of accounts is a list of financial accounts in the general ledger that is used to categorize and organize your company’s financial transactions. These accounts are used to record and track financial activity. They serve as the foundation for financial reporting, analysis, and compliance. Here is what typically comprises these accounts:
1. Account Number
This is a mandatory field. It is a unique number assigned to each account for identification and organization. The account number can be numeric, alphanumeric, or a combination of both.
2. Account Name
This is a mandatory field. It is assigned to give clear descriptive names for each account. This helps users easily understand the purpose for the account.
3. NetSuite Sub-Account Of Field
This field allows users to select a parent account to which the account is classified under. NetSuite allows you to create hierarchical relationships by defining parent and child accounts. Parent accounts group related sub-accounts together, providing a structured hierarchy.
4. Account Type
This is a mandatory field. The chart of accounts typically includes a number of categories that help classify transactions and provide a clear view of your company’s financial activities. While the specific categories can vary depending on your needs and industry, below are the 5 common categories often included in the chart of accounts:
• Assets
This represents your company's resources such as cash in hand, cash in bank, and accounts receivable.
• Liabilities
This represents your company's obligations such as accounts payable, loans payable, and accrued liabilities.
• Equity
This reflects the ownership interest in the company such as stocks, distributions, capital contributed, dividends and retained earnings.
• Revenue
This is the recorded income generated from sales of goods or services.
• Expenses
This tracks costs and expenditures related to your business operations.
NetSuite Numbering System
To further guide you on how to structure a chart of accounts in NetSuite and make it easier for management to pull out various components of the financial statements such as the balance sheet and income statement, it is also helpful to assign a numbering system to these account types such that:
- Assets all begin “1”, for example:
1000 Assets
1200 Cash in Hand
1300 Receivables
1400 Prepaid expenses - Liabilities begin “2”, for example:
2000 Liabilities
2100 Payables
2200 Accrued compensation & related items
2300 Other accrued expenses
You can put further detail into this so that management can more clearly understand where the money comes and goes.
5. Currency
This is a mandatory field for Bank accounts type. It allows you to assign specific currencies to handle transactions in multiple currencies if your business operates internationally.
6. Description
It allows you to include a detailed description to provide additional context and information for each account.
7. Reporting Segment
These are associated with accounts to allow for more detailed financial reporting and analysis. Below are the reporting native NetSuite chart of accounts segments:
• Department
This is used to categorize data and transactions based on different functional areas within your company. This typically includes departments such as Finance, Marketing, Operations, or any other way you want to segment your business.
• Class
This is used to categorize data and transactions based on the different dimensions of your business that relate to profitability such as product lines or product categories.
• Location
This is used to categorize data and transactions based on different physical or geographical locations where your business operates. This typically includes offices, stores, or warehouses.
8. Subsidiary
This is a mandatory field. It allows you to assign specific or multiple subsidiaries to accounts within NetSuite. NetSuite also supports inter-company transactions and consolidation.
9. NetSuite Custom Fields
NetSuite offers the flexibility to add custom fields to accounts for additional information or to capture data specific to your nature of business.
How can I Import a Chart of Accounts into NetSuite?
The NetSuite chart of accounts import template consists of all columns needed for a successful CSV import into NetSuite. Each column in the template corresponds to an existing field within NetSuite that will be matched during import. Some of the fields are mandatory (see above) while others are useful in providing more detail to each account.
To create the accounts within NetSuite, simply populate the CSV import template file based on your current chart of accounts structure and follow the steps below in performing a CSV import.
Here are the steps:
- Navigate to Setup > Import/Export > Import CSV Records.
- In the Scan & Upload CSV File page, select Import Type = Accounting
- Then, select Record Type = Chart of Accounts
- Then, select the CSV File to upload
- In the Import Options Field, select Data Handling = Add
- In the Field Mapping page, make sure that your CSV file fields match the correct NetSuite fields. Do not forget to update the “Subsidiary” reference type from “Names” to “Internal ID”, by clicking the pencil icon to the left of “Subsidiary” and setting the appropriate value.
- Once the import is successful, validate the data by navigating to the NetSuite chart of accounts page.
Keep in mind that the specific requirements may vary based on your NetSuite configuration and any customizations made to your system. If you created custom fields in the account to capture additional information, these fields must be added as new columns in the CSV import template file.
What are the NetSuite Chart of Accounts Best Practices?
Since setting up the chart of accounts is a crucial first step for accurate financial reporting, compliance, and efficient financial management in NetSuite, we have listed down some best chart of accounts practices for you to consider when configuring:
1. Do it Right the First Time
Before creating any accounts, it is essential to plan your chart of accounts structure carefully and do it right the first time. Have a visualization on how the hierarchy would look like based on your business' specific needs and reporting requirements.
Consider how you can categorize the accounts based on the account types and segments. Be mindful not to create too many specific accounts. Simplify the structure by merging similar accounts and sharing them across the different subsidiaries. This will spare you from a painful cleanup process at the end of the year as deleting and merging accounts is not a simple process when transactions have already been posted.
2. Use Meaningful Account Names (and Descriptions!)
Set clear and descriptive names to accounts and assign helpful descriptions to further provide detail. However, it is ideal if users can immediately understand the purpose of an account from its name itself. Avoid generic or ambiguous names that might lead to confusion.
3. Use Parent-Child Relationships
Using parent-child relationships helps create a more organized hierarchical structure within your chart of accounts. In this case, you can group various expense accounts under a single parent account "Operating Expenses". NetSuite also enables you to create an account record solely for reporting purposes called the summary accounts. This is useful when you want to create a non-posting, inactive parent account that has active child accounts.
4. Be Consistent with your COA
It would be easier for you to compare the performance of different accounts across periods or fiscal years over time. Constantly adding, merging, and deleting accounts can lead to loss of valuable financial data necessary to make a comparative report or workbook. If your company has multiple subsidiaries, maintain consistency in the structure and naming of accounts across subsidiaries. This simplifies consolidation and reporting.
5. Conduct Periodic Review and Cleanup
Regularly review and clean up your chart of accounts to maintain accuracy and relevance. Remove obsolete or unused accounts, and consider adjustments as your business evolves. Many companies find it beneficial to perform a thorough review and cleanup at the end of the year to reduce complexities during tax season. Depending on the business conditions however, some businesses can do more frequent reviews such as every accounting period especially when there are high transaction volumes and changes are rapid.
6. Consult with Experts
If your chart of accounts setup is complex or if you have specific business requirements, consider consulting with NetSuite experts to ensure your setup aligns with best practices. While consulting with experts can be an investment, it can help you avoid costly mistakes, streamline financial processes, and ensure that your chart of accounts serves your company's needs especially when it comes to financial reporting.
Remember that it is important to set up your chart of accounts right the first time. At Seller Universe, you can be confident that you are with the right NetSuite implementation partner as we have the best people to understand your business requirements and apply the best practices in setting up your chart of accounts in a way that fits your needs accordingly.
Frequently Asked Questions
1. What Are The Top Practices in Accounting?
Best accounting practices in NetSuite are essential for ensuring accurate financial record-keeping, compliance with financial regulations such as the Financial Accounting Standards Board (FASB), and effective asset management within the NetSuite platform.
Among the best accounting practices include chart of accounts design and organization. The chart of accounts should be designed to align with your business needs and industry standards whether that be manufacturing, ecommerce, wholesale distribution, etc. It is also best practice to maintain consistency in naming and categorization of these accounts.
In terms of security and user permissions, NetSuite allows you to set up appropriate user roles and permissions to control who can access and modify certain financial records. This limits access to sensitive financial information to authorized personnel only. You can also utilize NetSuite's audit trail feature to track changes made to financial records. This helps maintain data integrity and provides transparency for auditing purposes.
By adhering to these best accounting practices in NetSuite, your company can maintain accurate financial records, optimize financial processes, and make informed business decisions based on reliable financial data.
2. What Are Accounts Payable and Accounts Receivable?
Accounts Payable (AP) and Accounts Receivable (AR) are two primary components of a company's financial management system. They represent opposing sides of a company's financial transactions and reflect its relationships with creditors and debtors.
Accounts Payable tracks the company's outstanding obligations to its vendors for goods and services that have been received but not yet paid for. In other words, it represents the company's short-term liability or debt to external parties. Examples include utility bills, rent, office supplies, and any purchases made on credit terms.
On the other hand, Accounts Receivable tracks the money owed to the company by its customers for products sold or services provided on credit. It represents the company's short-term asset or claim to receive cash in the future.
3. What Are Accounting Lists in NetSuite?
In NetSuite, accounting lists are predefined lists of values that groups accounting records together. This includes records such as items, budgets, customers, projects, and vendors. Some common examples of accounting lists are vendor categories to further classify vendors and terms which are values used on invoice and customer records to specify when payment is due. To view the existing accounting lists, you can go to Setup > Accounting > Accounting Lists. You can also add new accounting lists by clicking the New button.
4. How Do I Setup a NetSuite Chart of Accounts?
There are two common ways to set up NetSuite’s account chart. The best practice is via CSV import as discussed in this article. This is especially used during the initial set up. You can do the succeeding changes manually through the user interface. To manually add an account, navigate to Lists > Accounting > Accounts > New and enter general account information.
5. Are There Any Additional Top Practices?
To effectively manage your accounting in NetSuite, additional top practices include utilizing integrations. This can have a significant impact on your business operations and efficiency.
In NetSuite, you can automate bank and credit card reconciliation by integrating your bank into NetSuite. Through this service, you can import your bank transactions seamlessly and set up rules to automatically match your bank and NetSuite transactions, reducing manual errors.
You can also integrate NetSuite with other systems such as CRM, ecommerce platforms, and payroll, to streamline data flow and eliminate manual data entry.
6. Can You Share NetSuite Chart of Accounts Examples?
Yes, we shared an example NetSuite chart of accounts in the “What Is a Chart of Accounts (COA) in Netsuite” section of this article!
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