This article is relevant if you are seeking to produce NetSuite balances sheets by company or subsidiary but you do not wish to utilize the OneWorld multi-company module.
A number of our clients are global in nature and support operations in many countries. We often see that our clients need to establish a legal entity with a governing authority so they can produce a local banking relationship in that foreign country to more easily transact with the citizens in that region.
By creating a legal entity, most of the time, our clients become obligated to produce financial statements to report on their business affairs. In the NetSuite environment, the most natural answer to this requirement is to think about having a multi-company accounting system. NetSuite has an answer: OneWorld.
However, if we look more fundamentally, our clients seek to simply produce reports to satisfy an agency obligation. In their business model, they seek to have a unified global operation. They want to treat all their customers the same. While they may want to organize around regional concerns, they truly are not operating different businesses due the separate legal entity.
The OneWorld system excels where there are real differences in business operations between subsidiaries. When you seek to partition your customers, vendors, products, and produce different employee permissions depending on the subsidiary preference, OneWorld works well. For holding companies with diverse subsidiary business operations and inter-company requirements, OneWorld should be carefully considered.
Yet, OneWorld may impose cumbersome day-to-day operations if you only seek to have subsidiary financial reporting.
Leverage NetSuite’s Custom General Ledger Segment
Instead of opting for the OneWorld system, why not use the power of the NetSuite platform to get the subsidiary reporting you need? The key to driving multi-subsidiary reporting requirements is to stamp every financial transaction with a Subsidiary reference key. This can now be done easier-than-ever leveraging NetSuite’s latest Custom General Ledger Segments.
View How To Video to Create NetSuite Custom Subsidiary Segment
The mechanism is straight forward. The key to making this work is is to ensure that every transaction header (or called body), not line (or called column) is recorded with a subsidiary record reference. By making the record mandatory, you are enforcing the system to confirm that each and every transaction has a subsidiary reference. In this 2:47 minute video, you will learn how you can do it:
The implementation is generally straightforward when you are doing a new NetSuite implementation. Since our firm produces new implementations, we design it from the start and it is quickly activated. Given how easily we can implement this, if we see any global ambitions in our client’s business strategy, we will recommend we activate this capacity from the start.
Subsidiary Sourcing Rules
To make the system easier to use, the general question is how to source which subsidiary will automatically default on a new transaction. As shown in the video, we globally defaulted the subsidiary value (which may be incorrect in your case) and we also had the value source from customer record. You will need to come up with your own rules.
Existing NetSuite Implementation
Retrofitting a production NetSuite system with the custom subsidiary segment takes more planning. Here, we will help our clients answer these key questions:
- What are the going forward subsidiary sourcing rules? These are generally the same rules for a new implementation as mentioned above.
- Do we need to go back and change data already in the system? Are we prepared to open up closed accounting periods?
- What rules are needed to retrofit the data? Do we have to derive the subsidiary values from other information?
- If we activate the custom subsidiary concept, are there existing customizations that may break?
- Can we test all assumptions in a Sandbox, build our data migration algorithms and methodically plan the activation?
The key control structures is to produce a trial balance by subsidiary and it should always foot to zero (debits equal credits). Likewise, running a balance sheet by subsidiary should also foot to zero.
Inter-company Journal Entries
Since you will not be using OneWorld, you will not have an Inter-company Journal Entry type. Thus, to handle this, I recommend you use two separate journal entries such as follows:
Subsidiary A Transaction Dr Due from Subsidiary B Cr Inter-company Clearing Subsidiary B Transaction Dr Inter-company Clearing Cr Due to Subsidiary A
The control discussed above will help you see if you made a mistake. However, if you find your are producing a bunch of these transactions and thus the practice becomes cumbersome, it’s straightforward to create a SuiteLet that can produce the inter-company journal entries just like OneWorld. We do these kinds of NetSuite enhancements all the time.
NetSuite OneWorld does a great job automating the elimination entries. In this case, there would be no offering without additional enhancements. Yet, in a simple way, the concept of an elimination subsidiary to wash out inter-company profit is well with the reason of this custom subsidiary segment. However, let’s remember, if you are producing inter-company profit, NetSuite OneWorld may make much more sense.
Get NetSuite Expert Leadership
The custom subsidiary segment illustrates how our practice combines strong knowledge of accounting and the NetSuite software platform expertise to solve for concerns that may not appear possible. If you seek to streamline your NetSuite operations, improve your accounting procedures, or get more out of your NetSuite investment, let’s have a conversation.