This article is relevant if you want to work with NetSuite non-inventory items (especially for drop ship business models) and you want to be able to produce accruals for purchase order receipts before you have the vendor bill.
Background
While working for a client who exclusively works in a complex drop-ship distribution business model, I discovered a recent capacity in NetSuite that I suspect was added in version 2015.2. For item types that are not related to Inventory, there is an item preference switch called “generate accruals”.
Of natural course in all things I do in NetSuite, when I see something new, I refer to the Help document. Yet, there was little information about the switch does. I became more curious because we have clients that work in drop ship fulfillment models and they are challenged to produce accruals for their non-inventory business because item there are general ledger cost impacts until a vendor bill is processed; the timing of this may not coincide with the actual drop ship fulfillment event.
Understanding NetSuite Item “Generate Accruals” Preferences Impacts
The Generate Accruals preference is available when you activate the Advanced Receiving feature (in Setup, Company, Enable Features). With that feature active, for non-inventory related item types that participate in purchasing cycle (purchase items or resale items), you are offered a preference to allow an item to be received. With the “Can be Received” switch on, you are also offered the option to activate “Generate Accruals”.
Once you have setup your non-inventory item preferences, you are now offered a new “Rate” column (default value copied from the Purchase Order) in your item receipt work. The existence of this rate element gives you a clue that a financial event will take place once the record is committed.
After committing your item receipt, view the GL Impact. NetSuite will credit a system account called “Accrued Purchases”. The debits will be routed based on the item definition. When you process the actual vendor bill, Accrued Purchases will be debited to offset the item receipt accrual. All good; but there are some considerations.
Considerations When using the Generate Accruals Feature
Based on my observations of this feature, consider the following in your implementation:
- Drop Ships Items: Because drop ships do not have an item receipt function, use a special order type instead to get the accrual behavior. This will divorce the item receipt from the item fulfillment event.
- Rate Modifications: Some organizations may be concerned about staff in the receiving department having the ability to modify the rate. Modify the form to hide the rate; or use some SuiteScript to make it readonly.
- Missing Customer / Project Dimension: a challenge with this approach is the item receipt does not expose the Customer / Project dimension on the line. For our specific client who needed tracking at this level, unfortunately, we could not use this feature.
- Rate Variances: If the vendor bill rate is different from the amounts that you specified in the item receipt, you will get imbalances in the Accrued Purchases account. This may become a reconciling concern when working to close your accounting period.
Related Articles
Solved: NetSuite Drop Ship Purchase Accruals
Is there a way to create multiple “Accrued Purchases” accounts so that accruals for Inventory and Non-Inventory are sitting in different buckets?
Hi Leo,
I am not sure we get the granular control over the routing of the accruals. But we have now solve this a different way if you are willing to convert your non-inventory items to inventory for the purposes of the accrual. See this article:
https://blog.prolecto.com/2016/06/12/solved-netsuite-drop-ship-purchase-accruals/
Marty
Hi Marty,
Is there any way to get Project in GL Impact of Item receipt, with Generate Accruals preference enabled on Items?
Hi Avinash,
I mentioned that you can’t get to the Project through this mechanism. But using the special order technique, you will get more control. Here is a related article: https://blog.prolecto.com/2016/06/12/solved-netsuite-drop-ship-purchase-accruals/
Marty
Herbert,
That does not sound right. I expect the item receipt to debit expense and credit accrual and that the vendor bill would debit accrual and credit accounts payable. Do you get different behavior?
Marty
In NetSuite is there anyway I can setup an automated collection process for reminders to customers in regards to receiving timely payments as opposed to late payments or no payments?
Debra,
This comment is off-topic relative to the post. My firm produces all kinds of automation around sending out customer notices. Since we can craft statements with links to web pay options and detect situations in advance. It’s all about the shape of the situation and then triggering the right action. I assume you saw these articles:
https://blog.prolecto.com/2021/06/05/extend-netsuite-customer-statements/
https://blog.prolecto.com/2017/11/04/learn-how-to-send-netsuite-late-invoice-reminders/
https://blog.prolecto.com/2022/05/29/early-warning-netsuite-past-due-invoice-notifications/
Naturally, reach out to us if you want one-on-one conversation.
https://www.prolecto.com/contact-us/
Marty
Marty,
Not sure if i am correct here, but we need a process where once the timesheet is created, it should also recognize the revenue for the same hours. Further, when the actual invoice is create with the same hours it will reverse the provision. Can we do anything here with accruals or using any other functionality in NetSuite.
Thanks in advance.
Bhavin
Hello Bhavin,
We had a client that came to us after they implemented using NetSuite Professional Services through a scripted journal entry solution. I see a number of ways it can be done including the use of custom transaction types as a way to implement a revenue recognition policy. The shaping of the invoice can offset earned revenue.
We also a built a tool to do this that can easily be shaped to give you what you you need. See this article:
https://blog.prolecto.com/2019/11/23/take-control-a-simplified-approach-to-netsuite-revenue-recognition-and-cost-amortization/
Marty