What are NetSuite Amortization Schedules and how to run them?

Have you ever tried to run an amortization schedule in NetSuite, only to find yourself more confused? Or do you keep getting stuck when crafting an amortization schedule that leads to financial problems? We get you. Running NetSuite amortization schedules can get complex if not understood properly. 

But fear not, because we have created this NetSuite amortization schedules user guide to help you with this process. By the end of this blog, you will get a clear idea of the basics of a NetSuite amortization process along with the necessary steps needed to create it. 

We will talk about the steps in a bit after we explain what an amortization schedule actually is.

What are Amortization Schedules?

Amortization is an accounting process that systematically lowers the book value of an intangible asset or a loan throughout a defined timeframe. The amortization schedule tracks repayments of loans and depreciation of the assets in a business. It impacts the balance sheet and income statement of a company. 

It works differently for both situations, like, if we talk about:

1.  Loans: The amortization focuses on segregating the loan payments over time into principal amounts and interest included in each payment. 
2.  Assets: Amortization is a process of expensing the intangible asset’s cost over the life cycle of the asset. In other words, it calculates the consumption of the value of the intangible asset every year. 

Read about accumulated depreciation vs depreciation expense here.

Why Choose NetSuite for Setting Up Amortization Schedule in Your Business?

NetSuite ERP is a cloud-based software that enables small or big companies to manage their entire business operations in a single platform. Like how NetSuite has feasible solutions for streamlining accounting, asset management, inventory management, etc. In the same way, NetSuite can make the process of setting up and managing amortization schedules smoother.

Simply put, the amortization schedule NetSuite feature enables the users to record the general ledger impact of item purchases and expense charges across several periods. 

Importance of Running an Amortization Schedule NetSuite Feature

As mentioned previously, NetSuite seamlessly automates the process of creating accurate amortization schedules for both loans and intangible assets. For a better understanding of NetSuite amortization schedules, take a look at the following example:

Let’s say your company paid an outside investor $50,000 for the development of software. Over that, you spent $5,000 to register the patent for 10 years. Further, you incurred some additional charges of $10,000.

The calculations will be as follows:

Capitalized Cost = $65,000 (50,000 + 5,000 + 10,000) and

Useful Life = 10 years

Amortization Expense = $65,000/10 = $6,500

So the amount $6,500 is required to be mentioned in the income statement that will be recorded as amortization expense each year. 

Here, NetSuite first allows you to record all the expenses easily. As soon as you create the amortization template in the software for this particular asset, it will generate the amortization schedule based on the inputs provided. 

After that, you can seamlessly create journal entries to ensure that each amortization schedule is recorded in every accounting period. Since this process is automated in NetSuite, there will be very low chances of any errors. 

Furthermore, as you know NetSuite comprises interrelated modules. This feature will enable you to track the amortization of the intangible asset on financial reports. Your financial statements will accurately reflect the gradual consumption of the asset’s value over its useful life. 

Key Components of an Amortization Schedule in NetSuite

To comprehend the steps of how to run amortization schedule in NetSuite in a better way, you need to familiarize yourself with its key components. As discussed above, we can set amortization schedules for both loan and intangible assets, hence, the two of them will have different basics.

Let’s discuss the key components of both systems one by one:

Key Components of Loan Amortization Schedule in NetSuite

1.  Initial Loan Amount: This is the initial amount of the loan that needs to be repaid.
2.  Interest Rate: The percentage charged on the remaining balance as interest
3.  Loan Term: The time over which the debt is to be repaid.
4.  Payment Frequency: How often payments are made, for example, monthly, or quarterly.
5.  Amortization Start and End Dates: The date when the amortization schedule begins and the date when the schedule closes respectively.
6.  Payment Amount: The total amount to be paid in each installment, including principal and interest.
7.  Remaining Balance: The loan balance due after each payment.

Key Components of Intangible Asset Amortization Schedule in NetSuite

1.  Asset Cost: The original cost of the intangible asset.
2.  Useful Life: The estimated duration the asset is expected to be useful.
3.  Amortization Start Date: The date when the amortization of the asset begins.
4.  Amortization Method: The approach you will use to distribute the asset’s cost over its useful life. For example, straight-line, declining balance, etc.
5.  Periodic Amortization Expense: The amount expensed in each accounting period. It also reflects the asset’s gradual consumption.
6.  Accumulated Amortization: The total amortization expense accumulated over time.
7.  Book Value: The remaining value of the asset on the balance sheet. It is calculated by deducting the accumulated amortization from the asset’s original cost.