Ever feel like the puzzle pieces of your NetSuite transactions aren't quite fitting together, leading to headaches with financial reporting and inventory control?
You're not alone. Understanding how NetSuite transaction types like sales orders, customer deposits, item fulfillments, invoices, refunds, and other interact is important for a clear financial picture. Each step has GL implications, and mastering these connections is key to effective record management, inventory accuracy, and sound financial health.
This blog provides a structured breakdown of key NetSuite transaction types and details when these records are created, their role in inventory and finance management, and how they impact the GL.
Understanding NetSuite Transaction Types
The table below provides a high-level overview of key NetSuite transaction types, their impact on financial accounts, and their dependencies.
Key NetSuite Transaction Types and Their Financial Impact
Below, we expand on all NetSuite transaction types, explaining when they are created, how they function, and their financial implications.
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Sales Orders (Non-Posting Transaction)
A Sales Order (SO) is created when a new order is recorded in NetSuite but has not yet been fulfilled. Since it is a non-posting transaction, it does not impact the GL. The financial impact happens only when the order is fulfilled and invoiced.
When a SO is created in NetSuite?
• When NetSuite receives new orders from an eCommerce platform or an Order Management System (OMS).
GL Impact
• None (until fulfillment and invoicing happen).
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Customer Deposits - Prepayments for Orders
A Customer Deposit is recorded when a retailer authorizes partial or full payment from a credit card on an eCommerce platform before shipping an order. This amount is considered a liability until the order is fulfilled.
When a customer deposit is created in NetSuite?
• When a retailer receives an upfront payment for an order before invoicing.
GL Impact
• Dr. Undeposited Funds: This temporary asset account records the payment received before it is deposited into the bank.
• Cr. Customer Deposits: This recognizes the retailer’s obligation to fulfill the order. The deposit is not considered revenue at this stage because the order items have not yet been delivered.
For example, If a customer pays $1000 for their order:
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Item Fulfillments – Recording Inventory Outflows
An Item Fulfillment (IF) records when items are shipped to customers or transferred between locations, reducing inventory levels in NetSuite.
When an IF is created in NetSuite?
• When warehouse teams fulfill Sales Orders in NetSuite.
• When an external system reports a Sales Order as shipped to NetSuite.
• When a Transfer Order (TO) is fulfilled in NetSuite or an external system.
GL Impact
• Dr. Cost of Goods Sold (COGS): Recognizes the cost of inventory as an expense. This represents the cost incurred to generate the revenue.
• Cr. Inventory Asset: Reduces inventory value, reflecting that stock has been shipped.
If an item with a cost of $500 is shipped:
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Invoices - Recognizing Revenue
Once an order is fulfilled, an Invoice is generated to bill the customer. This step formally records revenue and establishes an Accounts Receivable (A/R) balance.
When an invoice is created in NetSuite?
• When an order is fulfilled and the customer is billed.
GL Impact
• Dr. Accounts Receivable: Increases A/R, reflecting the amount the customer owes.
• Cr. Sales Income: Records revenue from the sale.
If an order worth $1000 is invoiced:
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Deposit Applications - Applying Prepayments to Invoices
A Deposit Application applies the customer’s deposit to an invoice. When a retailer receives a prepayment from a customer, it is recorded as a Customer Deposit (Liability). However, once the order is fulfilled and invoiced, the prepayment must be applied to reduce the customer’s outstanding balance.
When deposit applications are created in NetSuite?
• When an invoice is generated for a pre-paid order and the deposit is applied against it.
GL Impact
• Dr. Customer Deposits: This reduces the recorded liability, as the prepayment is now being recognized as part of the final payment for the invoice.
• Cr. Accounts Receivable: Reduces the amount the customer owes, as part of their invoice is now covered by the deposit.
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Return Merchandise Authorizations (RMA) - Managing Returns
An RMA initiates a return process before issuing a credit memo or refund.
When an RMA is created in NetSuite?
• When a customer requests to return an item.
GL Impact
• None directly, but it leads to credit memos or refunds.
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Credit Memos - Adjusting Customer Balances
A Credit Memo is issued when a customer returns an item or receives a credit for future purchases. This reduces the amount they owe to the retailer.
When a credit memo is created in NetSuite?
• When a customer returns an item. The Credit Memo does not refund money to the customer but instead reduces their outstanding balance.
• When a retailer needs to adjust an overcharged amount.
GL Impact
• Dr. Sales Income: Reversing previously recognized revenue from the sale.
• Cr. Accounts Receivable: Reduces the amount the customer owes.
If a $1000 return is processed:
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Customer Refunds - Issuing a Refund Instead of Store Credit
A Customer Refund is issued when a retailer returns money to a customer instead of keeping it as store credit.
When customer refunds are created in NetSuite?
• When a customer requests a refund for a returned item. The refund is issued only after a Credit Memo is applied.
GL Impact
• Dr. Accounts Receivable: Clears the customer’s outstanding balance.
• Cr. Checking Account or Accounts Payable: Reflects outflow of payments to customers.
A Checking Account in NetSuite refers to a specific type of bank account used for processing cash-related transactions, such as cash sales and customer refunds. It represents an actual bank account that a retailer uses to manage daily financial transactions, including receiving payments and making withdrawals.
If refunding to a credit card, the transaction may first be recorded under Accounts Payable before settling the payment. This allows the refund to be tracked as an amount the retailer still needs to pay back to the customer.
Once the payment (refund to their credit card or bank account) is actually processed, NetSuite records this as a payment against the Accounts Payable.
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Cash Sales - Immediate Payment Transactions
A Cash Sale happens when a customer purchases an item and pays immediately, for example items purchased in a retail store. Unlike an invoice, which creates an Accounts Receivable (A/R) entry, a cash sale records both revenue and payment in a single step. It also reduces inventory and records the COGS.
When cash sales are created in NetSuite?
• When a customer makes a purchase and pays instantly using cash, credit card, or another immediate payment method.
• These transactions are recorded directly in NetSuite as completed purchases without generating an invoice.
However, some retailers prefer to create a Sales Order (SO) for in-store sales, especially in cases where:
• A customer uses multiple payment methods (for example, a combination of cash and card). NetSuite's Cash Sale record only supports a single payment method, so using an SO allows flexibility in handling multiple payments.
• They want to follow a structured fulfillment process, where the record flow follows Sales Order → Item Fulfillment → Invoice, instead of a direct Cash Sale.
GL Impact
• Dr. Undeposited Funds (or Checking Account): Reflecting received payment. If a payment gateway (Stripe, PayPal) is used, the amount may first go to Undeposited Funds before settling into the bank account.
• Cr. Sales Income (Revenue): Revenue is recognized, as the sale is completed.
• Dr. COGS: Cost of sold inventory recorded as an expense.
• Cr. Inventory Asset: The inventory balance is reduced, as the item is no longer in stock.
If an item with a cost of $300 is sold:
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Cash Refunds - Refund for a Cash Sale
A Cash Refund is issued when a retailer returns cash for a previously completed cash sale.
When cash refunds are created in NetSuite?
• A cash refund is issued when a customer returns an item purchased from a cash sale. This reverses both the revenue and inventory movement recorded in the original transaction.
GL Impact
• Dr. Sales Income: Reversing the original sale.
• Cr. Checking Account or Undeposited Funds: Reflecting outflow of payment. If it is a cash/check refund awaiting deposit, it credits Undeposited Funds.
• Dr. Inventory Asset: Restoring the returned inventory value.
• Cr. COGS: Reversing the cost previously recognized.
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Item Receipts - Receiving Inventory from Purchase Orders and Returns
An Item Receipt is created when new inventory is received from a supplier or when returned items are restocked. This record updates inventory levels and impacts financial accounts accordingly. When new inventory arrives, NetSuite records it through an Item Receipt, increasing stock value.
When is an Item Receipt created in NetSuite?
• When inventory is received from a supplier against a Purchase Order (PO).
• When returned items from customers are restocked after an RMA process.
• When inventory is transferred between locations and received through a Transfer Order (TO).
GL Impact
• Dr. Inventory Asset: Increases the value of inventory (new stock added to inventory).
• Cr. Accrued Purchase: Records the liability for the purchase. Once a vendor bill is created, Accrued Purchase is cleared, and the liability moves to Accounts Payable.
If inventory with a cost of $6000 is bought:
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Item Variances – Managing Discrepancies in Inventory Costs and Quantities
An Item Variance is created if a physical inventory count differs from NetSuite records. These discrepancies arise due to factors like shrinkage, damaged items, or miscounts during receiving.
When are Item Variances recorded in NetSuite?
• If discrepancies are found during cycle counts or physical stock audits, an Inventory Adjustment is recorded.
• During inventory receipts, if the received quantity or cost differs from the PO, an Inventory Adjustment is created.
GL Impact
If inventory is lost (shrinkage, theft, damage, or write-offs):
• Dr. Inventory Adjustment Expense (or Inventory Shrinkage Expense, depending on company policy): Recognizes the lost inventory as an expense.
• Cr. Inventory Asset: Reduces the recorded inventory value.
If inventory is gained (previous undercount, misplacement, or errors in records):
• Dr. Inventory Asset: Increases the recorded inventory value.
• Cr. Inventory Adjustment Gain (or Other Income, depending on policy): Recognizes the inventory gain as income.
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Bank Deposits - Moving Payments to the Bank
A Bank Deposit is created when payments received from customers are moved from the Undeposited Funds account to the Checking Account (Bank Account).
When is a Bank Deposit created in NetSuite?
• When payments collected (cash, checks, or electronic payments) are deposited into a bank.
GL Impact
• Dr. Checking Account: Increases the actual bank balance.
• Cr. Undeposited Funds: Clears the amount previously held in this account.
For example, if a retailer deposits $2500 into their bank account:
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Managing NetSuite Transaction Types for Accurate Financials and Inventory Control
When it comes to getting your financials and inventory spot-on in NetSuite, it really boils down to understanding how all those different NetSuite transaction types talk to each other. The journey of a sale begins with a sales order in NetSuite, while Item Fulfillments, Invoices, and Customer Deposits capture the financial lifecycle of each order. Returns, refunds, and inventory adjustments further align financial data with actual stock movement and revenue.
HotWax Commerce Order Management System comes with pre-built NetSuite integration that supports workflows like Ship-from-Store and Buy Online Pick-Up In Store. It automates fulfillment updates, inventory synchronization, and financial reconciliation, helping retailers maintain accurate NetSuite records and improve transaction timing. The result is cleaner financial data and greater transparency across all sales channels.
Get in touch to streamline your omnichannel operations and make the most of your NetSuite investment.
