Financial Reporting Concepts
Understanding how Kezi calculates and structures financial reports is essential for maintaining accurate books and making informed business decisions.
The Trial Balance vs. The Balance Sheet
While both reports provide a summary of your accounts, they serve different purposes and use different structures.
The Trial Balance
The Trial Balance is an internal reporting tool. It is a raw list of ALL accounts in the Chart of Accounts that have a balance.
- Goal: To verify that Total Debits = Total Credits.
- Structure: A flat list of accounts with their current Debit or Credit balance.
- Check: Used by accountants as a "sandbox" to spot entries made to the wrong accounts before finalizing statements.
The Balance Sheet
The Balance Sheet is an external-facing financial statement.
- Goal: To show the company's financial position (Assets, Liabilities, Equity).
- Structure: Grouped by the Accounting Equation:
Assets = Liabilities + Equity. - Calculations: It aggregates accounts into higher-level categories (e.g., combining multiple bank accounts into "Cash and Cash Equivalents").
How Net Profit Flows to the Balance Sheet
One of the most important concepts in Kezi is the link between the Profit and Loss (P&L) and the Balance Sheet.
- The Profit and Loss report calculates your Net Profit (Revenue - Expenses) for a specific period.
- In the Balance Sheet, this Net Profit is displayed under the Equity section as Current Year Earnings.
- When a fiscal year is closed, these earnings are typically moved to Retained Earnings.
[!NOTE] If your Balance Sheet feels "off," the first place to check is the Profit and Loss statement for the same date range. A discrepancy in P&L will always reflect in the Balance Sheet's Equity section.
The Accounting Equation in Kezi
Kezi strictly enforces the double-entry system. Every transaction must be balanced.
- Assets: What the business owns (Cash, Inventory, Equipment).
- Liabilities: What the business owes (Vendor Bills, Loans).
- Equity: The owner's residual interest in the assets after deducting liabilities.
The system ensures that Total Assets always equals Total Liabilities + Total Equity.
Cash vs. Accrual Reporting
Kezi primarily operates on an Accrual Basis. This means:
- Revenue is recognized when an Invoice is validated, not necessarily when the cash is received.
- Expenses are recognized when a Vendor Bill is recorded, not necessarily when the bill is paid.
This provides a more accurate picture of your long-term financial health compared to simple cash-in/cash-out tracking.