1. Retained Earnings

• Example GL Code: 3000
• Purpose: The Retained Earnings account accumulates a company’s net income or loss after dividends or distributions are paid to shareholders. It reflects the cumulative profits retained in the business over time.
• Need: This account is critical for closing the books at the end of a fiscal year. The ERP system automatically transfers the net profit or loss from the Profit and Loss statement to this account, ensuring the balance sheet reflects the company’s retained financial position.
• Reason for Use:
  • Tracks historical profits/losses, which are essential for financial reporting and stakeholder analysis.
  • Provides a link between the income statement and balance sheet, ensuring continuity in financial records.
  • In the ERP, it automates the process of rolling over annual profits/losses, reducing manual errors.

2. Profit and Loss Year Transaction

• Example GL Code: 3100
• Purpose: This account temporarily holds the net profit or loss for the current fiscal year before it is transferred to the Retained Earnings account during the year-end closing process.
• Need: It acts as a clearing account for the income and expense accounts, consolidating the financial performance of the year. The ERP uses this account to calculate and summarize the company’s financial results before finalizing them.
• Reason for Use:
  • Ensures accurate tracking of the company’s annual financial performance.
  • Facilitates the year-end closing process by aggregating all revenue and expense transactions.
  • Simplifies auditing by providing a single account to review for annual profit/loss calculations.

3. Exchange Variance

• Example GL Code: 4000
• Purpose: The Exchange Variance account records gains or losses resulting from fluctuations in foreign currency exchange rates during transactions involving multiple currencies.
• Need: For businesses dealing with international suppliers or customers, exchange rate changes can affect the value of invoices or payments. This account captures these differences to maintain accurate financial records.
• Reason for Use:
  • Ensures compliance with accounting standards (e.g., IFRS or GAAP) for foreign currency transactions.
  • Tracks unrealized gains/losses for reconciliation during bank transactions or settlements.
  • In the ERP, it automates the calculation of exchange differences, reducing manual adjustments.

4. Bank Charges

• Example GL Code: 4010
• Purpose: This account records fees charged by banks for services such as transaction processing, wire transfers, or account maintenance.
• Need: Bank charges are a common expense for businesses with active banking operations. This account ensures these costs are tracked separately for expense analysis and budgeting.
• Reason for Use:
  • Provides visibility into banking-related expenses for cost control.
  • Supports accurate expense reporting in the income statement.
  • In the ERP, it integrates with bank reconciliation processes to automatically categorize bank fees.

Sales and Customer Accounts

The Sales module in an ERP system requires default GL accounts to streamline customer transactions and ensure consistency in financial postings. These accounts can be overridden for specific customers if needed, but defaults simplify setup.

5. Receivables Account

• Example GL Code: 1200
• Purpose: The Receivables account tracks the money owed to the company by customers for goods or services sold on credit (e.g., sales invoices).
• Need: This account acts as an intermediary between sales invoices and customer payments. When an invoice is issued, the amount is debited to this account; when the customer pays, it is credited, reducing the balance.
• Reason for Use:
  • Centralizes tracking of outstanding customer balances, improving accounts receivable management.
  • Enables aging reports to monitor overdue payments and improve cash flow.
  • In the ERP, it integrates with the Sales and Accounts Receivable modules to automate invoice postings and payment reconciliations.

6. Sales Account

• Example GL Code: 4000
• Purpose: The Sales account records revenue generated from the sale of goods or services.
• Need: This is a mandatory account for capturing the company’s core revenue stream. It ensures all sales transactions are properly recorded in the income statement.
• Reason for Use:
  • Provides a clear record of revenue for financial reporting and performance analysis.
  • Supports tax calculations and compliance by tracking taxable sales.
  • In the ERP, it integrates with the Sales module to automatically post revenue from invoices.

7. Sales Discount Account

• Example GL Code: 4010
• Purpose: This account records discounts offered to customers on sales invoices, such as volume discounts or promotional offers.
• Need: Discounts reduce the invoice amount and must be tracked separately to reflect the true revenue and analyze discount strategies.
• Reason for Use:
  • Ensures accurate revenue reporting by deducting discounts from gross sales.
  • Helps evaluate the financial impact of discount policies on profitability.
  • In the ERP, it automates discount postings, ensuring consistency across sales transactions.

8. Payment Discount Account (Prompt Payment Discount)

• Example GL Code: 4020
• Purpose: This account tracks discounts given to customers for paying invoices early or within a specified period (e.g., 2% discount if paid within 10 days).
• Need: Prompt payment discounts incentivize early payments, improving cash flow. This account ensures these discounts are recorded separately from sales discounts.
• Reason for Use:
  • Tracks the cost of offering early payment incentives for budgeting and analysis.
  • Supports accurate financial reporting by reducing receivables when discounts are applied.
  • In the ERP, it integrates with payment processing to automatically apply and record these discounts.

9. Shipping Income Account

• Example GL Code: 4030
• Purpose: This account records revenue earned from shipping or delivery charges billed to customers.
• Need: Shipping charges are often a separate revenue stream and need to be tracked independently from product or service sales.
• Reason for Use:
  • Ensures accurate revenue categorization for financial reporting.
  • Helps analyze the profitability of shipping services.
  • In the ERP, it integrates with the Sales module to automatically post shipping fees from invoices.

10. Deferred Income Account

• Example GL Code: 2200
• Purpose: The Deferred Income account records revenue received in advance for goods or services not yet delivered (e.g., subscriptions or prepaid contracts).
• Need: This account ensures compliance with revenue recognition principles, deferring revenue until the product or service is delivered.
• Reason for Use:
• Aligns with accounting standards (e.g., ASC 606 or IFRS 15) for proper revenue recognition.
• Tracks liabilities for unearned revenue, ensuring accurate balance sheet reporting.
• In the ERP, it automates deferral entries and recognizes revenue when delivery occurs.

When payment is received (before invoice

Purchases and Suppliers Accounts

The Purchases module requires default GL accounts to manage supplier transactions and ensure accurate expense and liability tracking.

11. Payables Account

• Example GL Code: 2000
• Purpose: The Payables account tracks amounts owed to suppliers for goods or services purchased on credit.
• Need: This account serves as an intermediary between purchase invoices and supplier payments. Invoices increase the balance (credit), and payments reduce it (debit).
• Reason for Use:
  • Centralizes tracking of supplier liabilities, improving accounts payable management.
  • Supports aging reports to monitor payment deadlines and avoid penalties.
  • In the ERP, it integrates with the Purchases and Accounts Payable modules to automate invoice and payment postings.

12. Purchase Discount Account

• Example GL Code: 5010
• Purpose: This account records discounts received from suppliers for early payments or negotiated terms.
• Need: Purchase discounts reduce the cost of goods or services and must be tracked to reflect accurate expenses and savings.
• Reason for Use:
  • Tracks cost savings from supplier discounts for financial analysis.
  • Ensures accurate expense reporting by reducing the purchase cost.
  • In the ERP, it automates discount postings during payment processing.

13. GRN Clearing Account (Goods Received Note Account)

• Example GL Code: 1210
• Purpose: The GRN Clearing account temporarily holds the value of goods received but not yet invoiced by the supplier.
• Need: This account is used in three-way matching (purchase order, goods receipt, and invoice) to ensure accurate recording of inventory and liabilities.
• Reason for Use:
  • Bridges the gap between goods receipt and supplier invoicing, preventing premature liability recognition.
  • Supports accurate inventory valuation by recording goods received.
  • In the ERP, it automates entries during goods receipt and clears them upon invoice posting.

Inventory and Services Accounts

Inventory-related accounts track stock balances, costs, and adjustments, ensuring accurate inventory management and cost reporting.

14. Inventory Account

• Example GL Code: 1300
• Purpose: The Inventory account tracks the value of goods held in stock for sale or use in production.
• Need: This account reflects the current value of inventory on the balance sheet and is updated with purchases, sales, and adjustments.
• Reason for Use:
  • Provides real-time visibility into inventory value for financial reporting.
  • Supports inventory management by tracking stock levels and costs.
  • In the ERP, it integrates with the Inventory module to automate stock-related transactions.

15. Cost of Goods Sold (COGS) Account

• Example GL Code: 5000
• Purpose: The COGS account records the direct costs of goods sold during a period, such as the cost of inventory used in sales.
• Need: This account is essential for calculating gross profit by matching the cost of goods sold with sales revenue.
• Reason for Use:
  • Enables accurate profitability analysis by tracking direct costs.
  • Supports income statement reporting and cost management.
  • In the ERP, it automates COGS postings during sales transactions.

16. Inventory Adjustment Account

• Example GL Code: 5020
• Purpose: This account records adjustments to inventory due to shrinkage, damage, obsolescence, or discrepancies found during stock counts.
• Need: Adjustments ensure the inventory account reflects the actual stock on hand, maintaining accuracy in financial and operational records.
• Reason for Use:
  • Corrects inventory discrepancies to ensure accurate balance sheet reporting.
  • Tracks losses or gains from inventory adjustments for analysis.
  • In the ERP, it automates adjustment entries during stock reconciliations.

17. Work in Progress (WIP) Account

• Example GL Code: 1310
• Purpose: The WIP account tracks the value of partially completed goods in the production process.
• Need: For manufacturing businesses, this account captures costs (e.g., materials, labor, overhead) incurred for goods not yet completed.
• Reason for Use:
  • Ensures accurate tracking of production costs for incomplete goods.
  • Supports cost accounting and financial reporting for manufacturing processes.
  • In the ERP, it integrates with the Manufacturing module to track production costs until goods are completed.