Feature rich functionality, designed to make your work day less complicated.
The Expense Allocation feature on NetSuite enables you to account for fixed expenses without having to split them among individual departments or locations in advance of incurring the expenses. Later, you can transfer expenses into different accounts and assign the expenses to specific departments, classes, or locations and custom segments, saving you the time required to enter complex journal entries.
Expense allocation is managed by allocation schedules. You set up allocation schedules to allocate, or transfer, balances from expense accounts into one or more other accounts. You can choose the date and frequency with which expenses are allocated on an ongoing basis.
With NetSuite Expense Allocation, you can allocate:
From one account or from multiple accounts
To specific departments, classes, or locations within expense accounts
From one account to multiple accounts
In this example we’re going to see how we can allocate our rent expenses to the different departments that we have within our organization.
NetSuite has two methods of allocating expenses:
1. Fixed-Rate Revenue and Cost Allocation Capability
2. Dynamic Allocation using Statistical Accounts
In this blog post, we’ll see how to use the Fixed-Rate Expense Allocation method and we’ll have a follow-up post on how to use Statistical Accounts for Dynamic Allocation.
In the Fixed-Rate Expense Allocation method, we define the weightage of each allocation manually.
For example, let’s say we have a vendor bill for our rent expenses for the month of September. On the vendor bill line level, we have assigned one department, the Head Office, to the expense item.
Instead of having multiple expense lines with different departments for the same rent expenses, we can use the fixed expense allocation feature of NetSuite to distribute or “allocate” these expenses to different departments.
In Fixed-Rate Expense Allocation, you need to define the weightage of distribution manually. For example, you can either evenly distribute all expenses across all your departments or you can add specific numbers.
Fig 1: Allocate expenses equally across all departments, Source: Own Representation
Fig 2: Allocate expenses by specific weightage across all departments, Source: Own Representation
Let’s see how to accomplish that on NetSuite.
Step 1: Create a vendor bill.
We’re going to create a simple vendor bill for our rent expenses and choose the “Head Office” as the department on the line level.
Fig 3: Vendor Bill Line Item, Source: Own Representation
When we look at our income statement broken down into different departments, all the rent expenses are in our Head Office department, as shown below:
Fig 4: Income Statement before Allocation, Source: Own Representation
Step 2: Create the allocation schedule
Next step would be to create the allocation schedule by going to Transactions > Financial > Create Allocation Schedules.
In the header section, enter a name, choose a subsidiary (if OneWorld), add the frequency of the allocation, and chose “Fixed Allocation” as the allocation mode.
Fig 5: Creating Allocation Schedule – Header, Source: Own Representation
In the “Source” subtab, select the account from which you’d like to allocate the expenses. You can filter it by a specific entity name (employee, customer, or vendor), and/or you can even filter by the different financial segments you have (class, department, and locations) and even custom segments.
In our example, we want to allocate our rent expenses from the head office department:
Fig 6: Creating Allocation Schedule – Source Subtab, Source: Own Representation
In the “Destination” subtab, select the target account(s).
In our example, we want to keep the same account, but only to re-allocate the expenses across different departments.
We can use an even distribution by clicking on the “Even Spread” button,
Fig 7: Creating Allocation Schedule – Destination Subtab (even distribution), Source: Own Representation
or , we can specify the weightage manually:
Fig 8: Creating Allocation Schedule – Destination Subtab (different weightage), Source: Own Representation
Once done, click on the Save button.
Step 3: Create the allocation journal entry.
Once you create your allocation schedule, you can generate your allocation journal entry. From the same Allocation Schedule, you can click on the “Create Journal Entry” button or you can also leverage the reminders on your dashboard.
Fig 9: Create Journal Entry from Allocation Schedule Page, Source: Own Representation
Fig 10: Create Journal Entry from the Reminder Portlet on the Dashboard, Source: Own Representation
Once you click on the “Create Journal Entry” button, NetSuite is going to create a journal entry to allocate the expenses from the Head Office department to the different departments that we have selected and accordion to the weightage that we set.
Fig 11: Allocation Journal Entry, Source: Own Representation
Note: You can view all the journals associated with your allocation schedules by going back to the allocation schedule (Transactions > Financial > Create Allocation Schedules > List > Open your schedule by clicking on the View link) and then clicking on the “History” subtab.
And if we now view our income statements, our rent expenses have been distributed across the different departments according to the weightage we specified in our allocation schedule:
Fig 12: Income Statement, After Allocation, Source: Own Representation
That was an overview of the fixed allocation feature on NetSuite. With dynamic allocation, you can create statistical accounts, for example, headcounts, and automatically allocate your expenses according to the number of people you have in each department.
