OneWorld

OneWorld is NetSuite's name for its multi-subsidiary consolidation module, and if you are not using a OneWorld account, feel free to skip this chapter. Consolidation is the accounting treatment for multiple independent business units that are owned by the same holding company. The business units are referred to as subsidiaries. These subsidiaries can operate in the same country as the holding company or in different countries, which adds the complication of operating in multiple currencies.

Big deal, you might say. Can't we just treat the subsidiaries as independent and create the financial statement for each subsidiary? We could then simply add up the results of all the subsidiaries to arrive at the consolidated income statement. The problem is that a significant number of transactions may be between different subsidiaries, where one subsidiary purchases goods from another. This has the effect of overstating sales if we were simply adding all the inpidual results together. It also would allow an unscrupulous accountant to overstate income by selling millions of dollars' worth of inventory from one subsidiary to another.

Accounting principles have stringent rules on consolidation to prevent this kind of abuse. It removes double counting by setting off intercompany transactions against an elimination subsidiary. To translate that into a NetSuite configuration, we would need to set up a holding company as well as each business unit as independent subsidiaries. We would also need to set up elimination subsidiaries in order to remove double counting.

Another implication of what we have said so far is that intercompany transactions are dealt with differently from regular transactions, which is the case in NetSuite. These are the only transactions that can be posted for more than one subsidiary. Every other transaction is posted against one subsidiary only.

NetSuite makes it even easier for us by removing the user's ability to choose a subsidiary of a transaction. It does so by sourcing the subsidiary based on the customer, vendor, partner, and employer that you are transacting with. In other words, we will select the subsidiary on that entity and all transactions from there on for that entity will be recorded against that subsidiary. Now, let's drill-down a little deeper into the details of setting up OneWorld.