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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.

Why there's no year-end closing entry​

Unlike some accounting systems, eSecured ERP does not run a year-end closing process — there is no button, scheduled job, or journal that zeroes out Income Statement accounts or posts a balance to Retained Earnings. Every report is computed live, on demand, straight from posted GL entries:

  • Profit & Loss (and any other Income Statement view) is a date-range query — pick a period and the system sums that period's Income/COGS/Expense entries from scratch. A new financial year simply means picking a new date range; there's nothing to "zero out" because the report was never accumulating a running balance in the first place.
  • Balance Sheet accounts (Assets, Liabilities, Equity) are a point-in-time snapshot — cumulative by nature, so they carry forward automatically. Nothing resets them, and nothing needs to.

So that the Balance Sheet still balances without a closing entry, it shows a calculated Retained Earnings line in Equity — the cumulative Income − COGS − Expenses to date. That line is a report figure, not a posted entry. If you want a formal Retained Earnings entry recording the prior year's net result, you'd post it yourself as a manual journal entry — the system won't generate one for you. Bear in mind that such a journal moves balances out of your Income and Expense accounts, so it will also appear in the Profit & Loss for whatever period includes its posting date.

The This FY / Last FY shortcuts on Financial Reports follow the fiscal year start month set in Accounting → Accounting Settings (July by default).

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: Invoice records (output VAT) and approved Expense records with VAT applied (input VAT) — not Chart of Accounts flags. Purchase Invoices are not currently included.
  • Period: Filtered by date range for TRA return preparation

Account Classification Rules​

The mapping is fixed and has no exceptions:

CategoryIncome/Balance SheetNormal BalanceReport behavior
IncomeIncome StatementCreditRe-computed fresh for whatever date range you pick
Cost of Goods SoldIncome StatementDebitRe-computed fresh for whatever date range you pick
ExpenseIncome StatementDebitRe-computed fresh for whatever date range you pick
AssetsBalance SheetDebitCumulative point-in-time balance
LiabilitiesBalance SheetCreditCumulative point-in-time balance
EquityBalance SheetCreditCumulative point-in-time balance

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.