Amortization Feature

Have you ever wondered how to track the cost of an item or expense over time? The Amortization feature in our system lets you do just that! It spreads the cost out over several future periods, giving you a clearer picture of your finances in the general ledger.

To use Amortization, you'll need to activate the Accounting Periods feature first. Think of amortization like a helpful tool similar to deferred revenue recognition methods. You can use them together to manage your finances effectively.

To enable amortization:

1. 1. Go to Setup > Company > Setup Tasks > Enable Features (Administrator).
   2. Click the Accounting subtab, ensure the Accounting Periods, Amortization, and any other desired feature boxes are checked, and click Save.
   3. Ensure that one or more deferred expense accounts are set up as needed. NetSuite automatically adds a default account with a type of Deferred Expense to the Chart of Accounts because at least one account of this type is required for the feature. You can create additional Deferred Expense type accounts as needed. For each item that requires amortization, you designate a Deferred Expense type account where expenses are posted according to the generated schedule. To view the automatically created account or to create additional accounts, go to Lists > Accounting > Chart of Accounts.
   4. Ensure that accounting periods are set up for the range of time your amortization schedules will cover, at Setup > Accounting > Manage Accounting Periods. For example, if you are going to create schedules that extend three years ahead, you need to set up accounting periods through that time.

When you turn on Amortization, NetSuite automatically adds a special Deferred Expense account to your Chart of Accounts. This type of account is important for the feature to work. In NetSuite, Deferred Expense accounts act like a catch-all for both prepaid and deferred expenses, and they show up as Other Current Assets on your balance sheet.

Creating Additional Deferred Expense account

Need more than one Deferred Expense account? No problem, you can easily create additional ones. Here's a pro tip: instead of changing an existing purchase transaction, use vendor credits to adjust your expenses. This keeps your original transaction data clean and makes it easier to track everything later on (auditors love a good audit trail!).

To set the amortization accounting preferences:

1. Go to Setup > Accounting > Accounting Preferences.
2. Click the General subtab.
3. Set the following preferences as desired:
   1. In the Revenue Recognition section:
      1. Use System Percentage of Completion for Schedules – Check this box to calculate project completion automatically, based on approved time logged against the project. To override the automatic calculation, enter a value in the Rev Rec Override Percent Complete field on the Financial subtab of the project. If you clear this box, you must enter the percentage of project completion for amortization manually on project records in the Rev Rec Override Percent Complete field. The value in this field can be different from the value in the system-calculated Percent Time Complete field.
   2. In the Amortization section:
      1. Allow Users to Modify Amortization Schedule – Check this box to allow changes in the total amount on an amortization schedule after it is initially created. The total amount of the schedule must always equal the purchase amount of the related line item. Only amounts that have not yet been recognized can be changed. Clear this box if you prefer that amortization schedules not be changed after they are created.
      2. Allow Foreign Currency Amortization Schedules – (Available only in NetSuite U.K. editions) Check this box to be able to create amortization schedules using the foreign currency amounts instead of base currency amounts.
      3. Default Amortization Journal Date To – Set the default posting date of amortization journal entries on the Create Amortization Journal Entries page as follows:
         • • Last Day of Period – The date defaults to the last day of the period you select in the Posting Period field.
           • Current Date – The date defaults to the current date.
      4. Default Amortization Journal Entry Form – Select the journal entry form to use for amortization journal entries. The options are Standard Journal Entry plus any custom journal entry forms created during implementation.
      5. Number of Short-Term Expense Periods - Enter the number of short-term expense periods to include in the Deferred Expense Waterfall report. Integers from 0 through 52 inclusive are valid values. The default is 12.

4. Click Save.

With amortization enabled, you can now create custom plans (templates) to spread out the cost of certain items and expenses. These templates give you flexibility: choose from common options or define your own terms, set the timeframe for recognizing the expense, and even delay recognition if needed.

Here's how it works: To spread out the cost of an item on a bill or credit, simply link it to an amortization template (which also needs a designated account for holding the deferred cost). You can set a default template for items, or choose one for each specific purchase on a bill. Expenses can also be amortized by associating them with a template and account on the transaction record.

Whenever you use amortization, NetSuite automatically generates a schedule that shows you exactly when and how much expense to recognize for each linked item or expense. This schedule serves as a guide for creating journal entries, which are accounting records that reflect the impact of amortization. Normally, bill item costs go straight to an expense account. But for amortized items, the cost is first parked in a separate account until it's gradually recognized through journal entries at the scheduled intervals. The good news is, NetSuite makes generating these entries a breeze! You can even use amortization templates with manual journal entries to create a custom schedule for a specific situation.

Contact Concentrus

Want to learn more about how amortization can benefit your business? Contact Concentrus today – we're happy to discuss your needs!

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