The Chart of Accounts
In this chapter we start looking at relationship, entity and list records, and in this lesson we cover the Chart of Accounts or COA. We talk about the out of the box accounts, and cover adding new ones. We cover using a numbered or numberless COA using department, class, location, subsidiary, and custom segments to segment data. We talk about account types and currencies, as well as inactivating and reactivating accounts.
In this chapter, we’ll take a look at relationship, entity and list records. And, the first place we’ll start is with the Chart of Accounts, which controls how your financials are recorded. This is also commonly abbreviated as the COA, so you may hear me use this term in this video, and this course. We can get to the Chart of Accounts by going to List, Accounting and clicking Accounts. Out of the box, NetSuite comes with a COA that contains many accounts that a small business would use, without providing so many that the system is unusable. These here at the top, are mostly out of the box. The ones that are built-in do not have numbers associated with them. This allows you to provide your own numbers if you want to, or use a numberless chart; which we’ll talk more about in just a moment. We can tell the difference between a provided account, from one that we have created, by opening it. I’ll go ahead and open two of these in new tabs so we can switch between them. If we look at this second one, and this is an account I created earlier, we see an actions menu. Under the actions menu we have the option to Delete this. If we click back to our other tab, you will notice the distinct lack of an actions menu. Even if we had an actions menu, we would not have the option to delete the account. Keep in mind that we are in edit mode for both of these as well. So, this is an easy way to tell what accounts are baked into the system you initially purchase. The ones that NetSuite provides out of the box cannot be deleted. They can be inactivated though. What accounts you have, and how they work, is going to depend on how you have your NetSuite instance configured. There are certain features that you can enable, and modules you can purchase, that can create or remove accounts. Which ones they create or remove will be specific to their functionality. You can edit accounts that are built-in, and of course you can edit the ones you create. If you are just getting started with NetSuite, my advice is to do the best you can, to use the accounts that come with the system. Number them if you need to, change the name as needed, but use them, rather than creating duplicates that have no functional difference. Here you can see that we can edit most of the data for the delivered accounts, and click save when we are done. I’ll go ahead and close these two tabs, and let’s look again at the COA. If we need to create a new account for something, and almost every company that I have ever seen does, we click the new button and begin creating it. You will notice here, that we have to provide a number, whereas for the built-in ones we do not have numbers. This has everything to do with how we have our instance of NetSuite setup, and we could alter this so that a number was not required. We do have to provide a name, and this can be anything that conveys meaning for us, and our organization. We can set this as a subaccount of an existing one if needed. We can choose the type of account this is. The default is Bank, but that is just because it is the first type in the list. The account type is very important, because this cannot be changed later, and this is true whether there are, or are not, any transactions posted to the account. So, you could not change a, Fixed Asset type, to an, Other Current Asset type, later if you wanted to. Currency is another field that can only be selected when the account is created. That is, you can’t change it later. Though, bank accounts are the only ones that really need a currency selected anyway. The rest of these fields can be changed later, so if you don’t get them setup perfectly that’s okay. Having said that though, you should always try to get them setup as close to perfect as you can, since this is much easier than fixing problems later. If I wanted to save this account, I could do so by clicking Save. In my case I am going to go back to our chart, by clicking on list, and I’ll also dismiss this warning. Again, this just tells me that I am about to leave a page where I have entered data and not saved what I entered. You may, or may not, have noticed this checkbox labeled, show inactives. This is present on a lot of the lists we look at, but this is the first time we have really talked about it. If we click this, the page refreshes, and we now have another column to the left titled, Inactive. This inactive column can be clicked or unclicked, and this is how we would mark accounts that we don’t need, or that we no longer need to use, as inactive. Since the default accounts, and any that have data in them, cannot be deleted, this is where you would go to inactivate them. You could also uncheck this box to reactivate an account if you needed to. Once your changes were made you would click submit. The last thing I want to talk about is the idea of using a chart of accounts without numbers. If you’re an accountant and this is giving you an anxiety attack, please bear with me, I promise this will make sense in a moment. We can see that all our accounts have an internal Id. This is something all records in NetSuite have, and is akin to a database Id, if you’re familiar with those. If not, all you really need to know is that this number is just for identification purposes inside the system. Now, on to the account numbers. Most businesses have numbers for all of the accounts in their chart, we can even see that I have them here, in my NetSuite instance. Every account in my instance that has a number is one that I created. These are the standard accounting numbers. And, as you can see, the accounts starting with a 1 are assets, those with a 2 are liabilities, those with a 6 are expenses. The thing is, historically, one of the reasons this was developed, was so that we could easily dementionalize our reports. For example, we could break costs down by where they were incurred. So, while the most significant digit would be related to the general code, there were other digits related to the departments or locations. For example, 6000 might be a general expense account, 6001 might be the one for the administration department and 6002 might be for sales. We could also see things like 6002 being for general sales expenses, 6012 being for sales expenses from Los Angeles, and 6022 being for sales expenses from New York. Some of you might also be used to using dashed separators between accounts. Having a chart of account designed this way, means that we have to put a lot of thought into how it should be setup. As well as put a lot of thought into how we will want to get data out later. But there is an easier way. Built into NetSuite, and this is seriously guys, one of the coolest features of the system that I have seen, is the ability to segment accounts. So rather than having to figure out what locations to use, and whether we need to use a one, or two, or three digit number to represent the location. We can use the segmentation fields NetSuite provides for us instead. This also means that as the business grows, we are less likely to have to renumber our chart. Using this method, you can even abandon numbered accounts all together. The way this works is that every account in NetSuite has an account type; asset, liability, expense, etc. Since there is a type, there really isn’t a need to have a leftmost digit. We can just look at accounts by type. Each time you perform a transaction you can select a department, location and class. These act as data you can use to later segment, or slice and dice, reports. So rather than having to build a report that includes just sales from Austin and Denver based on their account numbers, you can do this with more meaningful data. This leads to a cleaner chart of accounts, and one that is easier to maintain. If you are in OneWorld, you can also segment transactions by subsidiary. Department and location are pretty easy to understand, but if you are wondering what class is, well it’s whatever you want it to be. This is an additional dimension that is delivered with NetSuite, that you can use to segment data however you want. You can also rename this if class makes no sense to you, so this could be something like product line. For a long time, class was the only extra dimension you had available to segment your data, but a few years ago, NetSuite release custom segments. So, for example, if you have product line, as well as market base, and you need to track both of these, well you can easily do that now. The other piece that helps from having to have a fully numbered COA, is that you can make one account, the subaccount of another. This provides a lot of functionality when you are looking at rollup reports. To be honest, even after understanding that they are not mandatory, most accountants still prefer a numbered COA. If you do use numbered accounts, I would highly encourage you to keep the structure as simple as possible, and not create separate, essentially duplicate, accounts for each department and location. This may go against what you are used to, but I promise this will save you a lot of time in the long run. Now that you understand the chart of accounts we can move on to a few other accounting topics in the next video.