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Accounting Concepts

This page explains the accounting principles that drive how eSecured ERP Platform classifies accounts, generates reports, and handles year-end closing. Understanding these concepts helps you set up your Chart of Accounts correctly and interpret your financial reports.

Income Statement vs Balance Sheet​

Every account in the Chart of Accounts belongs to one of two types:

Account type classification

TypeCategoriesBehaviour
Income StatementIncome · Cost of Goods Sold · ExpenseTemporary — zeroed at year-end
Balance SheetAssets · Liabilities · EquityPermanent — balance carries forward

This classification is derived automatically from the category. You do not set it manually — the system always knows which type an account is based on its category.

Year-End Closing​

At the end of each financial year, the system performs a closing process:

Year-end closing flow

  1. All Income Statement accounts (Income, COGS, Expense) are zeroed out
  2. The net amount (profit or loss) is posted to Retained Earnings (an Equity account)
  3. The new year begins with all Income Statement accounts at zero — a clean slate
  4. Balance Sheet accounts are unaffected — their balances carry forward

The closing entry is a standard double-entry journal:

Dr  All Income accounts       (sum of credit balances)
  Cr  All COGS accounts         (sum of debit balances)
  Cr  All Expense accounts      (sum of debit balances)
  Cr/Dr  Retained Earnings      (the difference = net profit or loss)

Report Generation​

Each financial report reads from a specific subset of accounts:

Report mapping

Profit & Loss​

  • Source: Income Statement accounts (Income, COGS, Expense)
  • Period: Filtered by date range
  • Output: Revenue − COGS − Expenses = Net Profit / Loss

Balance Sheet​

  • Source: Balance Sheet accounts (Assets, Liabilities, Equity)
  • Period: Point-in-time snapshot (cumulative, not date-filtered)
  • Output: Assets = Liabilities + Equity

Trial Balance​

  • Source: All accounts
  • Purpose: Verify Dr = Cr across the entire ledger

VAT Report​

  • Source: Accounts designated as VAT accounts in your Chart of Accounts
  • Period: Filtered by date range for TRA return preparation

Account Classification Rules​

The mapping is fixed and has no exceptions:

CategoryIncome/Balance SheetNormal BalanceYear-End
IncomeIncome StatementCreditZeroed
Cost of Goods SoldIncome StatementDebitZeroed
ExpenseIncome StatementDebitZeroed
AssetsBalance SheetDebitCarries forward
LiabilitiesBalance SheetCreditCarries forward
EquityBalance SheetCreditCarries forward

Common Misclassifications​

Deferred Revenue — Money received before service delivery (e.g. prepaid freight) is a Liability, not Income, until earned. Use a Liabilities account (e.g. "Deferred Freight Revenue").

Owner capital contributions — Money put in by owners is Equity (e.g. Share Capital), not Income. Crediting an Income account inflates your P&L.

Loan receipts — A bank loan received is a Liability (Loan Payable), not Income. The cash hits an Asset account; the obligation hits a Liability account.