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. Â If you are like me, you learned basic T-Accounts in elementary accounting classes in school. Â 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:
- Offers and promises are made to customers.
- Customers accept offers and fulfillment must happen to produce satisfaction and payment.
- Sufficient profit must be made or the business will eventually run out of capacity and fail.
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 Â (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.