Using Percent-Complete Amortization for Projects

If you have a projects based business, you can amortize expenses based on the percentage of completed project work by using variable amortization schedules. You can coordinate the recognition of deferred expenses with the completion of stages for your projects.

You can set up items and expense accounts to be associated with a variable amortization template and with projects you track. Then purchases of these items or expenses charged to these accounts generate amortization schedules based on the template and the linked project completion.

Note:

Variable amortization schedules do not include forecast amounts.

As time worked is logged against the project and portions of the project are marked complete, journal entries are created to recognize the related expenses.

Important:

This feature is available only if you use Project Management.

To amortize expenses based on project completion:

1. Enable the Amortization feature. See Setup for Amortization.

2. Create a variable type amortization template. See Creating Amortization Templates.

3. Associate the variable type amortization template with items and expense accounts used for the project. See Configuration for Amortization, and Associating Amortization Templates with Expenses.

See the following topics for more details:

• System Percentage of Completion Preference

• Percent-Complete Based Amortization Journal Entries

• Variable Schedule Amortization Example

System Percentage of Completion Preference

You can set a preference for NetSuite to automatically determine the percentage of a project that has been completed.

To automatically calculate the percent completion for a project:

1. Go to Setup > Accounting > Accounting Preferences.

2. Click the General subtab.

3. Check the Use System Percentage of Completion For Schedules box.

4. Click Save.

If you do not enable this preference, you must enter the percentage of project completion manually on project records in the Percent Complete field.

Percent-Complete Based Amortization Journal Entries

The Create Amortization Journal Entries page includes expense amounts due to post from variable schedules based on project completion.

For the period you select, NetSuite determines the amount due to be amortized for each schedule based on project completion. It calculates project completion based on entered and approved project time entries. The Project record shows the percentage of completion for the project in that period, and NetSuite uses that percentage to determine the expense due to post.

A variable schedule does not show in the list if:

• It has a zero balance to amortize for the selected period.

• It has already amortized an amount for the selected period.

Amortization journal entries typically credit a deferred expense account and debit an expense account. In some cases, however, a journal entry may decrease the expense recognized. In these cases, the amortization journal entries debit a deferred expense account and credit an expense account. For an example of this case, see the Variable Schedule Amortization Example.

Variable Schedule Amortization Example

Variable schedules are used to amortize expenses associated with projects. Time logged against the project toward completion determines the percentage complete. Then the percent complete figure determines the amount amortized that period.

In the example below, vendor bills and payroll amounts contribute to the total cost for a project. The % Complete column shows the status of the project at the end of each period. The amount to be amortized is shown in the Amortization Period column.

Period	% Comp.	Bills	Pay-roll	Total costs	Amortization Periods
					1	2	3	4	5	6
1	25%	1000	160	1160	290	580	348	580	812	1160
2	50%	200	160	360	180	180	108	180	252	360
3	30%	300	160	460	138	230	138	230	322	460
4	50%	250	160	410	205	205	123	205	287	410
5	70%	230	200	430	301	215	129	215	301	430
6	100%	600	180	780	780	390	234	390	546	780
Total		2580	1020	3600	1894	1800	1080	1800	2520	3600

Sometimes when projects are reassessed after they begin, the percentage complete can regress. An example of this is shown in Period 3 above, where the completion changes to 30%, down from 50% in Period 2.

To continue this example, the chart below shows the net amount, rather than the total amount, to be amortized per period.

	Amortization Periods						Total
	1	2	3	4	5	6
Amortized Balance	290	580	348	580	812	1160
Amortized Portion per Period	290	290	(232)	232	232	348	1160
Amortized Balance		180	108	180	252	360
Amortized Portion per Period		180	(72)	72	72	108	360
Amortized Balance			138	230	322	460
Amortized Portion per Period			138	92	92	138	460
Amortized Balance				205	287	410
Amortized Portion per Period				205	82	123	410
Amortized Balance					301	430
Amortized Portion per Period					301	129	430
Amortized Balance						780
Amortized Portion per Period						780	780

Related Topics

Expense Amortization

Setup for Amortization

Amortization Templates

Amortization Schedules

Amortization Journal Entries

Foreign Currency Amortization

Amortization Reports

General Notices