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Best Practices for Modeling General Ledger in NetSuite

Where individual assets and accounts are trees, ledgers are forests. A General Ledger is a finance team’s primary document that shows all the business transactions (accounts payable and receivable, cash balances, inventories, fixed assets, investments, stocks, liabilities, etc.). The ledger technology has come a long way from the iconic leather-bound book with its neatly engraved row of numbers. For this reason, finance teams should understand the role of the GL, best practices for moving away from static ledger formats in favour of dynamic models, and how to uncover new insights that can inform business strategy in a fast-paced world.

NetSuite General Ledger (GL) automates critical accounting processes and provides a customizable structure that adapts to the needs of any business. Modify accounts, payments, and reporting sections to meet your specific business needs. Reduce your reliance on manual data entry by using regular bank integration, rule-based activity reconciliation, and automatic posting of journal entries. NetSuite helps accounting and finance professionals maintain accurate financial records, deliver insightful reports, and close the books on time.

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Data is entered in one central location, resulting in one agreed-upon version of the information. Any number of changes in the system are automatically reflected in reports and dashboards, so you always know where your business is.

Let’s begin with the concept of a table. Tables represent columns and rows, and spreadsheets are great tools for visualizing them. Important conceptual rules for this table are:

Accounts sum to zero: The sum of all accounts must always equal zero.

Debits Equal Credits: The sum of all debits must equal the sum of all credits. Note that the database always represents credits as negative numbers within the NetSuite platform. Debits and credits display values ​​depending on whether they are positive or negative.

Double-entry bookkeeping aims to create error management practices and summarize transactions into meaningful information. We categorize accounts into different types in our financial statements to get meaningful information. Two important financial statements are the balance sheet and the income statement. NetSuite can create these reports and provides the structure.

All general ledger transactions must be defined by account type. These are built into NetSuite and cannot be changed.

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Naming remains a challenge in data modeling. When we are introduced to accounting and bookkeeping, we learn about the core five accounts of accounting; Assets, Equity, Liabilities, Income, and Expenses. All of this is conceptually consistent with what you learned in your first-year accounting course. By imposing structure, NetSuite can ensure that out-of-the-box reports work. Note that the database ID concept presented below is intended to help generate unique string values ​​that do not contain spaces. When building databases and computer programs, avoiding spaces in naming structures is a common rule. In NetSuite, an important concept to understand when defining your chart of accounts is that the account number is another string value that must be unique. It does not have to be a number. You can easily create an account number called “1134.clearing” and NetSuite will be perfectly happy. After all, account numbers are really meaningless and not needed.

The Posting Flag

The NetSuite posting concept is simple. A true/false flag indicates whether the transaction has a financial impact (posting equals true). Like many other old-school financial systems, there is no accounting routine other than changing the accounting flag from false to true. NetSuite often sets the flag from false to true when a transaction is approved.

Transaction Dates and Accounting Period

NetSuite has a concept of the accounting period that organizes how time is divided into reportable components. The natural calendar of months and years is the most common way accountants divide time. But there are many ways to divide time into reportable segments. Readers may be interested in my article NetSuite 4-4-5 Accounting Period Definition Consideration.

The most important consideration is that NetSuite uses the transaction date as a lookup value and automatically (by default) applies the fiscal period definition to the transaction. NetSuite can summarize financial reports by both date and fiscal period. This can confuse people when transaction dates don’t match accounting periods.

The NetSuite General Ledger model requires a posting date and period for all transactions.

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NetSuite Dimensions

A key differentiating ledger feature provided by NetSuite is the concept of dimensions. Dimensions, like charged account types, are another way of classifying general ledger accounts. The dimension opens new ways to think broader and more fundamentally about your financial transactions to get meaningful reports. Before  custom dimensions were available, NetSuite offered the following dimensions:

Subsidiary: If you are not using NetSuite’s One World feature, the additional value is always 1 and is not displayed. Summing up all the postings for the subsidiary, the sum of the amounts is zero, and the debits equal the credits. 

Location: Location is typically designed for inventory operations and is most commonly used to represent a physical street address.

Department: Anything. Most people think of it as functions within an organization such as sales, marketing, operations, and management.

This is mainly due to the traditional meaning of the word “department”. Class: Like departments, classes can be set freely. Once you know that departments and classes are free-flowing, you must model them carefully to gain significant reporting benefits. With NetSuite’s new Custom Dimensions feature, you can create more dimensions than just two (department and class). In my opinion, I like using NetSuite’s custom dimensions because they have almost more flexibility than departments and classes in terms of built-in filtering and sourcing.

No New General Ledger Accounts Needed

Once you get started with powerful dimensional modelling, you’ll find that you don’t need to create new general ledger accounts as your business evolves. If you have used dimensions to model your business functions properly, instead add new values ​​to the product and service dimension list when you launch a new product or service. Then this effectively opens the ledger for further reporting.

Bottom Line

Why choose a powerful NetSuite ERP system unless you can derive great value from the platform? Platforms are limited unless you do the real work of integrating your business into the system with good modelling. Planning and modelling work is done to extract maximum value from the NetSuite platform. The idea of ​​a central database for your entire business can only be realized if you plan and build NetSuite upfront to reflect your actual business operations.

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