Avoid the Temptation to use Journal Entries

This article is relevant if you hold an accountant role and you use NetSuite.

The “Whys and Why Nots” of Journal Entries

Journal entries are the foundation of bookkeeping and double entry accounting.  If you are like me, you learned basic T-Accounts in elementary accounting classes in school.  Your understanding of debits and credits and the fundamentals of balance sheet and income statement thinking is sound.

However, I suggest you develop a philosophy to avoid using journal entries in favor of other transaction types when working with NetSuite.

Journal Entries are Costly

Exceptions are situations that demand different action than what was previously contemplated. Exceptions are generally costly to deal with and require more care than a standard operation. Sometimes, the way to avoid exceptions, is to think more fundamentally.

Because business is effectively trade, there are some fundamental constructs for which can trust face any on-going business. For example:

  1. Offers and promises are made to customers.
  2. Customers accept offers and fulfillment must happen to produce satisfaction and payment.
  3. Sufficient profit must be made or the business will eventually run out of capacity and fail.
NetSuite seeks to organize around these fundamentals. Most every business has an “operation” which represents a loop of offers, acceptance, fulfillment, payment, and accounting.  Well run businesses recognize these looped operations and standardize their practices to improve the reliability and quality of outcomes while lowering cost to increase profitability and customer satisfaction.

Wherever your find an operation, there is likely a NetSuite transaction type that can serve you.  Yes, the transaction structure may need some enhancement, but the foundation is there.  For example, if you charge each customer different rates for services, instead of trying to remember those rates when producing invoices after you have fulfilled, use a NetSuite Sales Order to hold all the information about your promise to your customer.

Suppose a customer decides to pay funds in advance, and this is unusual for you, resist making a journal entry to debit cash and credit accounts receivable (or worse, credit sales).  Look for the NetSuite transaction structure that supports this situation.  In this case, use a “Customer Deposit”.

NetSuite transaction structures, relative to Journal Entries, are rich. They can hold much more information. They effectively hide the double entry accounting behind the scenes — which is good for removing the extra costs to produce thinking, possible errors, and the need for more highly skilled professionals.

Use Journal Entries for Exceptions

Everytime you think, “I need a journal entry.”, instead, ask yourself, “Can I think about this situation differently and leverage a built-in NetSuite transaction type instead?”. This question will force you to contemplate your business practice and possible reveal an opportunity to improve a process.

Should you use a journal entry, then make sure you know that all your journal entries are unusual situations that you should not encounter again. Hence, your Journal Entries should probably have references to other documents  (spreadsheets, reports, or other analysis) that will help you explain the situation sometime in the future. Because of the need for greater levels of care, can you see how Journal Entries are more costly to produce, rather than traditional transaction structures, such as customer invoices?

What is your philosophy surrounding Journal Entries? If you seek help to optimize your use of NetSuite, contact us.

 

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Marty Zigman

Holding all three official certifications, Marty is Southern California's NetSuite expert and leads a team of senior professionals at Prolecto Resources, Inc. He is a former Deloitte & Touche CPA and has held CTO roles. For over 25 years, Marty has produced leadership in ERP, CRM and eCommerce business systems. Contact Marty to setup a conversation.

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| Tags: , , , , , | Category: Accounting, ERP, Management, NetSuite | 13 Comments

13 Comments

  1. Posted August 16, 2013 at 3:34 pm | Permalink

    Great points here. It’s always best to use accounting software features like “Deposits”, “Purchase Orders”, and “Invoices” rather than posting journal entries directly to the GL.

    This article is relevant even if you’re currently using QuickBooks and considering switching to NetSuite.

    Speaking of customers paying funds in advance, if you’re using QuickBooks Online, you’ll quickly learn that while you can make a deposit to “Unearned Revenue” (or whatever liability account you create for deferred revenue), you cannot turn around and apply the payment to future invoices as revenue is earned. You would have to create a journal entry if you want to make the proper entries to record the transaction.

    In per usual with QBs, if you want to record proper accounting entries, using J/Es can unfortunately become the norm, not the exception. If this sounds like you, it might be time to upgrade to NetSuite.

  2. Posted August 17, 2013 at 1:45 pm | Permalink

    Thanks Kyle. Looks like you are now on NetSuite. Best of luck. Glad you have joined our NetSuite Southern California Innovators Linked In Group.

    Marty

  3. Elyann
    Posted October 29, 2013 at 10:46 am | Permalink

    Is there a way to get an export of all journal entries made within NetSuite? Specifically, user ID, account, amount, descriptions, JE #?

  4. Posted October 29, 2013 at 7:36 pm | Permalink

    Hi Elyann,

    Have you tried a Saved Search based on “Transactions” with a “Type” filter of “Journal Entry”? The user ID is available by Last Modified By. And the rest is pretty easy to figure out.

    Marty

  5. Elyann
    Posted October 30, 2013 at 11:27 am | Permalink

    That exported all manual journal entries. Thank you. Is there a way to export automated entries as well to ensure that balances rolled (i.e., compare beginning trial balance + all manual and automated JE data = ending trial balance)?

  6. Posted October 30, 2013 at 2:34 pm | Permalink

    I think you are asking two things:

    1. Can you get to automated journal entries? Yes, are they not coming out? I will have to check but their transaction type should be “jouranl entry”.
    2. How to get to the detail of a balance? All balances on the GL can be regenerated via Saved Search. Make sure Posting = True. Key on account number. For the balance sheet, you need to pull all balances from inception as it moves forward in time. The change can be isolated using date criteria.

    Am I confused by what you are asking?

  7. Elyann
    Posted October 30, 2013 at 3:08 pm | Permalink

    It appears that the Saved Search based on “Transactions” with a “Type” filter of “Journal Entry” is only pulling in manual entries.

    When we try to confirm that balances are rolled, the beginning trial balance plus all the journal entries posted this fiscal year does not equal the ending trial balance.

  8. Posted October 30, 2013 at 3:33 pm | Permalink

    Remove the “Type” Filter and now filter on Account so that you can zero in on what is going on. The sum of all those transactions should equal your TB as of a particular date. You can then see what it is made up of. Does it not tie out?

    Finally, when you want to get fancy, you can use the Summary feature to get it to categorically roll up information.

  9. Dan Bernal
    Posted March 19, 2015 at 2:12 pm | Permalink

    Is it possible to use an already posted journal entry that is in a closed period to “pay” and open vendor invoice/s that are currently on my AP aging?

    Regards,
    Dan Bernal

  10. Posted March 19, 2015 at 3:07 pm | Permalink

    Hi Dan,

    I suspect not if I understand your situation. It certainly can’t hurt to try it. You may need to open up the periods, pay it, then close the periods.

    Marty

  11. Dan Bernal
    Posted March 19, 2015 at 3:16 pm | Permalink

    Thank you sir.

  12. Marlen
    Posted March 15, 2017 at 10:52 am | Permalink

    Is there a way to void a vendor payment posted in a closed period without affecting that period other that with a journal entry?

  13. Posted March 18, 2017 at 6:02 am | Permalink

    Hi Marlen,

    I think I understand what you are getting at. A vendor payment is effectively a debit to AP and a credit to cash. The key to getting a debit on the AP journal is to issue a Vendor Credit. Consider then how you want to route the line information on that vendor credit for cash portion of the transaction.

    Marty

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