Adjustments

Complete guide to adjusting entries including accruals, deferrals, revenue recognition, and expense amortization.

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Overview

ADJUSTING ENTRY TYPES
═══════════════════════════════════════════════════════════════════

ACCRUALS                          DEFERRALS
────────                          ────────
Record expense/revenue            Delay recognition of
BEFORE cash exchange              prepaid items

┌─────────────────────┐           ┌─────────────────────┐
│ Accrued Expenses    │           │ Prepaid Expenses    │
│ (incurred, not paid)│           │ (paid, not incurred)│
├─────────────────────┤           ├─────────────────────┤
│ Accrued Revenue     │           │ Deferred Revenue    │
│ (earned, not billed)│           │ (collected, not     │
└─────────────────────┘           │  earned)            │
                                  └─────────────────────┘

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Accrual Entries

Accrued Expenses

Record expenses incurred but not yet billed.

ACCRUED EXPENSE EXAMPLE
───────────────────────────────────────────────────────────

Scenario: January electricity bill ($2,500) 
          not received until February

January Accrual Entry:
  Utilities Expense         $2,500  Dr
  Accrued Expenses                  $2,500  Cr

February (Bill Received):
  Accrued Expenses          $2,500  Dr
  Accounts Payable                  $2,500  Cr

Result: Expense recognized in correct period (January)

Common Accrued Expenses

Type	Description	Typical Timing
Utilities	Electric, gas, water	Bill arrives next month
Services	Legal, consulting, audit	Invoice after work done
Payroll	Wages earned, not paid	Pay date in next period
Interest	Loan interest accrued	Quarterly payments
Taxes	Property tax accrued	Annual payment

Accrued Revenue

Record revenue earned but not yet invoiced.

ACCRUED REVENUE EXAMPLE
───────────────────────────────────────────────────────────

Scenario: Consulting services provided in January ($10,000)
          Invoice to be sent in February

January Accrual Entry:
  Accrued Revenue           $10,000  Dr
  Service Revenue                    $10,000  Cr

February (Invoice Created):
  Accounts Receivable       $10,000  Dr
  Accrued Revenue                    $10,000  Cr

Result: Revenue recognized when earned (January)

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Deferral Entries

Prepaid Expenses

Expenses paid in advance, recognized over time.

PREPAID EXPENSE EXAMPLE
───────────────────────────────────────────────────────────

Scenario: Annual insurance premium $12,000 paid January 1
          Coverage: Jan 2026 - Dec 2026

January 1 (Payment):
  Prepaid Insurance         $12,000  Dr
  Cash                               $12,000  Cr

Monthly Recognition (Jan-Dec):
  Insurance Expense          $1,000  Dr
  Prepaid Insurance                  $1,000  Cr

Balance Sheet:
  Jan 31: Prepaid Insurance = $11,000
  Feb 28: Prepaid Insurance = $10,000
  ...
  Dec 31: Prepaid Insurance = $0

Common Prepaid Expenses

Type	Recognition Pattern
Insurance	Monthly over coverage period
Rent	Monthly as incurred
Subscriptions	Monthly over subscription term
Licenses	Monthly or annually
Maintenance contracts	Over contract period

Deferred Revenue

Revenue collected in advance, recognized when earned.

DEFERRED REVENUE EXAMPLE
───────────────────────────────────────────────────────────

Scenario: Annual support contract $24,000 collected January 1
          Service period: Jan 2026 - Dec 2026

January 1 (Cash Received):
  Cash                      $24,000  Dr
  Deferred Revenue                   $24,000  Cr

Monthly Recognition (Jan-Dec):
  Deferred Revenue          $2,000  Dr
  Service Revenue                    $2,000  Cr

Balance Sheet:
  Jan 31: Deferred Revenue = $22,000
  Feb 28: Deferred Revenue = $20,000
  ...
  Dec 31: Deferred Revenue = $0

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Revenue Recognition (ASC 606)

Overview

NetSuite Advanced Revenue Management automates ASC 606/IFRS 15 compliance.

REVENUE RECOGNITION FLOW
═══════════════════════════════════════════════════════════════════

TRANSACTION                DEFERRED                  RECOGNIZED
───────────                ────────                  ──────────

Invoice Created ──────►  Deferred Revenue  ──────►  Revenue
$100,000                 (Liability)               (Income)
                              │
                              ▼
                    Revenue Recognition
                    Journal Entries
                    (Per Schedule)

Revenue Recognition Elements

Element	Description
Revenue Element	Definition of what triggers recognition
Revenue Recognition Rule	Schedule or event-based
Revenue Arrangement	Grouping of elements
Fair Value	Allocation basis

Revenue Recognition Journal Entries

REVENUE RECOGNITION JE
───────────────────────────────────────────────────────────

Initial Invoice (Deferred):
  Accounts Receivable       $100,000  Dr
  Deferred Revenue                    $100,000  Cr

Monthly Recognition ($10,000/month):
  Deferred Revenue          $10,000  Dr
  Revenue                            $10,000  Cr

Period Close Checklist:
  1. Lock A/R
  2. Lock A/P
  3. → Create Revenue Recognition JE ←
  4. → Reclassify Deferred Revenue ←

Revenue Recognition Close Tasks

ARM PERIOD CLOSE CHECKLIST
───────────────────────────────────────────────────────────

Prerequisites:
  ✓ Lock A/R (must be complete)
  ✓ Lock A/P (must be complete)

Revenue Tasks (in order):
  1. Create Revenue Recognition Journal Entries
     - System generates JEs based on schedules
     - Debits Deferred Revenue
     - Credits Recognized Revenue

  2. Reclassify Deferred Revenue (Monthly)
     - Moves short-term to long-term
     - Updates liability aging
     - Journal entries created

Navigation: Setup > Accounting > Manage GL > Advanced Revenue Management

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Expense Amortization

Amortization Schedules

Automatically spread expense recognition over multiple periods.

EXPENSE AMORTIZATION SETUP
───────────────────────────────────────────────────────────

On Vendor Bill:
┌────────────────────────────────────────────────────────┐
│ Item/Expense:     Software License                     │
│ Amount:           $12,000                              │
│ Amort. Template:  12-Month Straight Line               │
│ Start Date:       01/01/2026                           │
│ End Date:         12/31/2026                           │
└────────────────────────────────────────────────────────┘

System generates Amortization Schedule:
  Period      Amount
  ──────      ──────
  Jan 2026    $1,000
  Feb 2026    $1,000
  Mar 2026    $1,000
  ...
  Dec 2026    $1,000

Amortization Journal Entries

EXPENSE AMORTIZATION JE
───────────────────────────────────────────────────────────

Initial Bill (Deferred):
  Prepaid/Deferred Expense  $12,000  Dr
  Accounts Payable                   $12,000  Cr

Monthly Amortization:
  Software Expense          $1,000  Dr
  Prepaid/Deferred Expense          $1,000  Cr

Navigation:
  Transactions > Financial > Create Amortization JE
  OR via Period Close Checklist

Amortization Templates

Template Type	Use Case
Straight Line	Equal amounts each period
Variable	Custom amounts per period
Project-Based	% complete method
Start/End Date	Specific date range

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Reclassification Entries

Purpose

Move balances between accounts for proper financial statement presentation.

RECLASSIFICATION EXAMPLES
───────────────────────────────────────────────────────────

1. CUSTOMER CREDIT BALANCES
   Customer has credit balance (overpayment)
   
   Reclassify Entry:
     Accounts Receivable     $500  Dr
     Customer Deposits              $500  Cr
   
   Reason: AR can't be negative on balance sheet

2. RELATED PARTY NETTING
   Net AR and AP with same entity
   
   Reclassify Entry:
     Accounts Payable        $5,000  Dr
     Accounts Receivable            $5,000  Cr
   
   Reason: Net presentation for related parties

3. CURRENT/NON-CURRENT SPLIT
   Move portion of long-term debt to current
   
   Reclassify Entry:
     Long-Term Debt          $10,000  Dr
     Current Portion LTD            $10,000  Cr

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Recurring Journal Entries

Setup Recurring Adjustments

RECURRING JOURNAL ENTRY SETUP
───────────────────────────────────────────────────────────

Navigation: Transactions > Financial > Create Recurring JE

Configure Template:
┌────────────────────────────────────────────────────────┐
│ Name:           Monthly Rent Accrual                   │
│ Frequency:      Monthly                                │
│ Start Date:     01/01/2026                             │
│ End Date:       12/31/2026 (optional)                  │
│                                                        │
│ Lines:                                                 │
│   Rent Expense           $5,000  Dr                    │
│   Accrued Rent                  $5,000  Cr             │
│                                                        │
│ ☑ Auto-generate at period start                       │
└────────────────────────────────────────────────────────┘

Recurring Entry Types

Type	Frequency	Example
Fixed amount	Monthly	Rent, depreciation
Estimated	Monthly	Utilities, bonuses
True-up	Quarterly	Reconcile estimates
Reversing	Monthly	Auto-reverse next period

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Adjusting Entry Workflow

Month-End Adjustments Checklist

ADJUSTING ENTRIES CHECKLIST
═══════════════════════════════════════════════════════════════════

□ ACCRUALS
  □ Accrued wages (days worked, not paid)
  □ Accrued utilities (estimated usage)
  □ Accrued professional fees
  □ Accrued interest expense
  □ Accrued revenue (unbilled services)

□ DEFERRALS
  □ Prepaid insurance amortization
  □ Prepaid rent recognition
  □ Deferred revenue recognition

□ REVENUE RECOGNITION (if ARM enabled)
  □ Run Revenue Recognition JE
  □ Deferred Revenue Reclassification

□ EXPENSE AMORTIZATION
  □ Create Amortization JE

□ RECLASSIFICATIONS
  □ Customer credit balances
  □ Current/non-current splits
  □ Related party netting

□ REVIEW
  □ Compare to prior period
  □ Investigate variances > 10%

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Best Practices

Adjusting Entries

Practice	Recommendation
Consistency	Same approach each period
Documentation	Explain basis for estimates
Templates	Use recurring entries
Materiality	Don't adjust immaterial items
Review	Two-person review process

Common Issues

Issue	Cause	Resolution
Duplicate accrual	Didn't reverse prior month	Review open accruals
Missing amortization	Schedule not created	Set up templates
Rev rec timing	Wrong recognition rule	Review ARM setup
Estimate variance	Actual different from accrual	True-up entry

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Related Topics

• Month-End Close - Full close checklist
• GL Impact - Journal entries
• Period Close Checklist - Close tasks