- NetSuite offers a period close checklist for a streamlined financial close process.
- There are five key areas you need to focus on before you complete NetSuite’s built-in year-end close checklist.
- Whether you have a question on your period close processes or are looking to expand your NetSuite ERP with integrations or deeper functionality, our team can help.
Successfully closing your accounting periods in NetSuite is a key aspect of adequately tracking your organization’s overall financial health and prevents posting actives to closed periods.
NetSuite’s built-in period close checklist is a helpful guide on the proper sequence of steps to a successful period or year-end financial close, but it is not meant to be a full, comprehensive list of all your close activities. In fact, following NetSuite’s close checklist should be your last step in a much larger period close process. So where do you start, and what needs to be completed before following the close checklist?
Here are some key areas to consider and best practices to follow when closing out a period in NetSuite.
1. Accruals & Adjustments
You must record adjustments and other accruals prior to starting the NetSuite period close process. Examples of adjustments and accruals that are typically posted prior to a period close include:
- Liability accruals (i.e., payroll, vacation, and sick pay accruals)
- Mark-to-market adjustments
- Interest, income, and expense accruals
- Depreciation and amortization
- Revenue recognition
- Deferred revenue reclassification
Your inventory management also plays a key role in successfully closing out your current accounting period in NetSuite. Consider the following when going through the period close checklist:
Resolve Date/Period Mismatches
Date-dependent costing methods — LIFO, FIFO, and Average Cost — use transaction dates to manage costing layers or cost averaging. It is possible for the transaction date and the posting period to disagree, such as an item receipt dated May 1 with an April posting period, which may result in incorrect inventory costing.
Date and period mismatches may also create discrepancies between top-level financial statements generated by period and detail reports generated by date.
Review Negative Inventory
Negative inventory happens when a sales order for an inventory item is fulfilled without a positive on-hand quantity for the item. This may result in inaccurate cost-of-sales calculations and inventory valuation.
Review Inventory Costing
The NetSuite inventory costing engine operates in the background to calculate the cost of goods sold and inventory values for LIFO, FIFO, and Average Cost valuation methods. Costing will be affected by item receipt or inventory adjustment transactions dated within the period, so verifying that cost calculations are completed is necessary before closing the period.
3. Foreign Currency Adjustments
For users processing transactions in more than one currency, adjustments related to foreign currency denominated transactions are managed through NetSuite’s close processes. The checklist line item Revalue Open Foreign Currency Balances identifies open accounts receivable and accounts payable transactions in a foreign currency and automatically adjusts the value of the transaction to reflect changes in exchange rates. The adjustment posts an unrealized gain or loss for the period and is automatically reversed in the subsequent period. Foreign currency denominated bank balances are also revalued, posting a reversing adjustment to an unrealized gain or loss for the period.
4. Consolidated Financial Statements
NetSuite OneWorld users producing consolidated financial statements that include subsidiaries with different base currencies will need to establish the exchange rates used for the consolidation ahead of the period close. Three rates can be used depending on the type of account that is being translated, and users have the option of setting the rates for each manually. Below is the typical setting for each account type.
- Balance sheet accounts, except for equity accounts, typically use the current rate, which is set by the system to equal the end-of-period currency exchange rate.
- Income statement accounts use the average rate, calculated as the weighted average of the exchange rate used in transactions denominated in the foreign currency during the period. You can override this rate if you would prefer to use an average exchange rate for the month as determined by an exchange site like Oanda.
- Equity accounts use the historical rate. The historical rate is set to the same value as the current rate; however, when consolidated financial statements are produced, the equity account values will be translated using the rate from the historical period in which the activity was posted.
5. Intercompany Activities
NetSuite OneWorld users also have the option of enabling the Intercompany Time and Expense and Automated Intercompany Management features.
Both features generate eliminating journal entries for intercompany activities as part of the month end close process.
Keeping these areas in mind as you close out your accounting period or fiscal year in NetSuite will ensure a seamless financial close. But when questions do arise, know that our team is here to help.
We are an award-winning, six-time NetSuite Partner of the Year solution provider with the knowledge and resources to help you get the most out of your NetSuite investment. Whether you have a question on your period close processes or are looking to expand your NetSuite ERP with integrations or deeper functionality, our team has both the experience and the expertise to help drive your business forward.