Chart of Accounts Design
The chart of accounts is the backbone of your financial system. A well-designed COA enables meaningful reporting; a poorly designed one creates endless workarounds.
Design Principles
Before diving into account numbers, establish guiding principles that will inform every decision.
1. Keep It Simple
The best chart of accounts is the smallest one that meets your needs. Every account you add is an account someone must choose when entering transactions, and an account that appears in reports. Resist the urge to create accounts for every possible scenario.
2. Use Segments for Analysis, Not Accounts
NetSuite's classification segments (Departments, Classes, Locations, and Custom Segments) exist specifically so you don't need a separate account for every analytical dimension. If you're tempted to create accounts like "Office Supplies - East Region" and "Office Supplies - West Region," stop. Create one Office Supplies account and use Locations for regional analysis.
3. Design for Reporting First
Start with the reports you need to produce, then work backward to the account structure that supports them. Financial statements, management reports, tax returns, and board presentations should drive your design.
4. Plan for Growth
Leave room for expansion. If you number accounts 1000, 1001, 1002, you have no room to insert a new account between them. Use intervals (1000, 1100, 1200) to allow for future additions.
Account Numbering Strategies
Account numbers serve multiple purposes: they determine sort order, indicate account type, and can encode hierarchical relationships.
| Range | Account Type | Examples |
|---|---|---|
| 1000–1999 | Assets | Cash, AR, Inventory, Fixed Assets |
| 2000–2999 | Liabilities | AP, Accrued Expenses, Loans |
| 3000–3999 | Equity | Common Stock, Retained Earnings |
| 4000–4999 | Revenue | Product Sales, Service Revenue |
| 5000–5999 | Cost of Goods Sold | Direct Materials, Direct Labor |
| 6000–7999 | Operating Expenses | Salaries, Rent, Marketing |
| 8000–8999 | Other Income/Expense | Interest, Gains/Losses |
| 9000–9999 | Statistical/Memo | Headcount, Square Footage |
Sub-Account Numbering
Use the last digits to indicate sub-account hierarchy:
Four digits (1000–9999) provide enough range for most organizations while keeping numbers manageable. Five or six digits are rarely necessary and make data entry more error-prone. If you need more granularity, that's usually a sign you should be using segments instead of accounts.
NetSuite Account Types
NetSuite has specific account types that determine behavior. Choose carefully—changing an account type later can be disruptive.
| Account Type | Normal Balance | Use For | Special Behavior |
|---|---|---|---|
| Bank | Debit | Checking, savings accounts | Appears in bank reconciliation |
| Accounts Receivable | Debit | Customer receivables | System-controlled, one per subsidiary |
| Other Current Asset | Debit | Prepaid expenses, deposits | Standard asset behavior |
| Inventory | Debit | Inventory valuation | Updated by inventory transactions |
| Fixed Asset | Debit | Property, equipment | Works with Fixed Assets module |
| Accounts Payable | Credit | Vendor payables | System-controlled, one per subsidiary |
| Other Current Liability | Credit | Accruals, deferred revenue | Standard liability behavior |
| Income | Credit | Revenue accounts | Rolls to Retained Earnings |
| Cost of Goods Sold | Debit | Direct costs | Updated by item costing |
| Expense | Debit | Operating expenses | Standard expense behavior |
AR and AP accounts are special. NetSuite creates one default AR and AP account per subsidiary. While you can create additional AR/AP accounts, transactions using them won't appear in standard aging reports. Stick with the default system accounts unless you have a specific reason.
Multi-Subsidiary Considerations
In OneWorld (multi-subsidiary) environments, chart of accounts design has additional complexity.
Shared vs. Subsidiary-Specific Accounts
- Shared accounts appear across all subsidiaries. Best for standardized accounts that exist everywhere (Cash, AR, Revenue, etc.)
- Subsidiary-specific accounts only appear for selected subsidiaries. Useful for country-specific accounts or unique business requirements.
Elimination Accounts
Intercompany transactions require elimination during consolidation. Create dedicated elimination accounts:
- Intercompany Receivable — Asset account for amounts owed by other subsidiaries
- Intercompany Payable — Liability account for amounts owed to other subsidiaries
- Intercompany Revenue/Expense — For intercompany sales and transfers
Start with a shared chart of accounts across all subsidiaries. Only create subsidiary-specific accounts when absolutely necessary (local regulatory requirements, unique business models). It's much easier to add subsidiary-specific accounts later than to reconcile divergent charts of accounts during consolidation.
Common Design Mistakes
- Over-engineering for edge cases: Don't create an account for a transaction that happens once a year. Use a more general account with a memo.
- Duplicating segment dimensions in accounts: "Marketing Expenses - East" and "Marketing Expenses - West" should be one account with Location segment.
- No room for growth: Sequential numbering (1001, 1002, 1003) leaves no room to insert new accounts logically.
- Inconsistent hierarchy: Mixing 3-level and 4-level hierarchies in the same section makes reporting confusing.
- Legacy system replication: Your old system's account structure was designed for different software. Rethink for NetSuite.