Quick Accounting 101

Accruals and prepayments are two common adjustments in accounting. These entries ensure that expenses are recorded in the correct period—regardless of when cash is paid. While both deal with timing differences, the key distinction lies in when the cost is incurred versus when the cash disbursement occurs.

	Accruals	Prepayments
Nature	Expense has been incurred but no cash has been paid or received.	Cash has already been paid, but the expense has not yet been incurred.
Accounts	Dr to Expense and Cr to Liability	Dr Prepaid Expense (Asset) and Cr to Cash
Example	Utilities (e.g., electricity, mobile)	Rent, Insurance
Timing	Benefit now, pay later	Pay now, benefit later

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Common Practice in NetSuite

Many NetSuite users aren’t aware that accruals can be automated. As a result, month-end accruals are often handled manually through adjusting journal entries. While this approach works, it creates several challenges—especially when dealing with high transaction volumes, ensuring accurate accrual amounts, performing proper reconciliations, and matching manual journal entries back to the original source transactions.

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Configure Accruals in NetSuite

To automate accruals in NetSuite, the transaction must use an item that posts to the expense account. Entering the expense directly on the line won’t trigger an accrual because the accounts themselves don’t have an “accrual” setting.

Create a service/non-inventory item for purchase

1. Navigate to Lists > Accounting > Items > New.
2. Select Service or Non-inventory Item For Purchase.
3. To make it intuitive for users, name the item using the same Account Number and Account Name. This helps avoid confusion by making the item look like the expense account they would usually select.
4. Click the Accounting subtab and select the expense account under the Expense Account field.
5. Click the Preferences subtab and tick the Can be Fulfilled/Received checkbox. Doing this will enable the field Generate Accruals (since the item should be received before the accrual can be posted).
6. Tick the Generate Accruals checkbox.
7. Click Save.

Note: Depending on the item form you are using, these fields may appear under different subtabs or sections.

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Recording Transactions

Create a purchase order

You should create a purchase order to separate the receiving from the billing.

1. Create a purchase order and select a vednor.
2. Add the accrual item under the Items subtab and Items sublist (not the Expense sublist).
3. Click Save.

Create an item receipt

1. Open the purchase order you want to receive.
2. Click the Receive button.
3. Set the posting date under the Date field.
4. Tick the items that should received/accrued.
5. Set the quantity that should be received.
6. Click Save.

Alternatively, you can create item receipts in bulk by navigating to Transactions > Purchases > Receive Orders.

When the item receipt is created, the G/L impact will be:

• Dr Expense
• Cr Accrued Purchases

Note: Accrued Purchases is a system-generated default account that NetSuite uses to automate accruals. This account cannot be replaced, so avoid making it inactive. However, you can assign an account number to keep it aligned with your chart of accounts structure.

Create a vendor bill

1. Open the purchase order or item receipt.
2. Click the Bill button.
3. Set the posting date under the Date field.
4. Retain the items that should be billed.
5. Set the quantity that should be billed.
6. Click Save.

When the vendor bill is created, the G/L impact will be:

• Dr Accrued Purchases
• Cr Accounts Payable

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Reporting Made Easy

There are several ways to check the Accrued Purchases balance.

Accrued Purchases Register

1. Navigate to the Chart of Accounts page (Reports > Financial > Chart of Accounts).
2. Find and click the Accrued Purchases account.
3. Set the necessary filters (e.g., date, open). Tick also the 1-Line checkbox for a cleaner view.
4. Click Refresh.

Account Details

1. Open the Balance Sheet ( Reports > Financial > Balance Sheet).
2. Set the necessary filters.
3. Click Refresh.
4. Click the Accrued Purchases account.

You will be redirected to the Balance Sheet Details, which displays all transactions contributing to the Accrued Purchases balance.

Saved Search

You can create a custom saved search—or request assistance from your NetSuite Administrator—to gain more flexibility in reporting. For example, you may want to analyse the Accrued Purchases balance by vendor, and view the credits (item receipts), debits (vendor bills), and the net balance for each one.

SuiteAnalytics Workbook

Similar to a saved search, you can create a SuiteAnalytics Workbook if you prefer a graphical analysis of the Accrued Purchases account. For example, you may want to visualise the percentage of the remaining Accrued Purchases by vendor.

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Summary of the GL Impact

Transaction	Generate Accruals is unchecked	Generate Accruals is checked
Purchase Order	No GL Impact	No GL Impact
Item Receipt	No GL Impact	Dr Expense Cr Accrued Purchases
Vendor Bill	Dr Expense Cr Accounts Payable	Dr Accrued Purchases Cr Accounts Payable

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Possible Issues

Issue	Impact	Solution
If the Bill in Advance of Receipt accounting preference is enabled, users can create the vendor bill before the item receipt.	The bill will debit Accrued Purchases and credit Accounts Payable. Until the Item Receipt is created (which credits Accrued Purchases), the account will have a debit (negative) balance.	– Turn off the Bill in Advance of Receipt Accounting Preference – If disabling the preference is not feasible, create a customisation that prevents users from creating a vendor bill for items that have not been received.
Users may mistakenly enter expenses instead of items.	No accrual will be generated.	– Disable the Accounting Preference Allow Expenses on Purchases. – If disabling the preference is not feasible, create a customisation that hides the Expenses sublist.
The item is configured to Generate Accruals and has a default Amortization Template.	You cannot create a vendor bill for this item. Attempting to save the bill will trigger the following error: “You cannot create an amortization schedule for a purchase order line that generates an accrual. The purchase order line with item XXX is set to generate an accrual.”	– The item should be configured for either accrual or prepaid (amortisation), but not both. – Either remove the Amortization Template or untick Generate Accruals. – Create separate items for accrual and prepayment.
There is a discrepancy between the purchase order and the vendor bill quantity, exchange rate, or price.	There will be a remaining balance in the Accrued Purchases account after posting the item receipt and vendor bill.	Run the Post Vendor Bill Variances to adjust the Accrued Purchases and expense accounts.

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Important

• Ticking Can Be Fulfilled/Received and Generate Accruals only affects future transactions. Even if you edit and re-save historical transactions, they will not adopt the new settings.
• You cannot tick Generate Accruals if the item already has related transactions. To override this, first uncheck Can Be Fulfilled/Received, then re-check it to make the Generate Accruals option available again.
• The timing of when Generate Accruals is enabled follows the source transaction. This means enabling it later will not update historical purchase orders.
• If Generate Accruals is unchecked, the system posts the expense in the Vendor Bill, not in the Item Receipt.
• To update historical purchase orders with no related records, remove the item from the line and then re-add it. This will “re-trigger” the updated settings from the item record.