Understand Financial Statements and Its Main Components

In business profit is an important thing and becomes the main focus of every entrepreneur or company. However, before going far to talk about profit, companies must have sound financial reports. Financial reports are very important because the financial statements record all business activities, both expenses and income. In the financial statement business is divided into two types, namely financial statements of trading companies and financial statements of service companies. In this article I will discuss the financial statements of service companies.

Table of Contents

1 What is a Service Company?

2 Financial Report

3 Service Company Financial Statements

4 Examples of Service Company Financial Statements

4.1 a. Income Statement

4.1.1 Direct Form (Single Step)

4.1.2 Gradual Form (Multiple Step)

4.2 b. Capital Statement

4.3 c. Balance Sheet

4.4 d. Statement of Cash Flows

4.4.1 Cash Flows from Operating Activities

4.4.2 Cash Flows from Investing Activities

4.4.3 Cash Flows from Financing Activities

What is a Service Company? 

Service company is a type of business that offers services to other people. This is of course different from trading companies which usually have objects or objects in plain view. Examples of this service company are barbershop, travel business, laundry business, and so on.

In the process, most service companies do not need capital or raw materials. Because what is sold is based on experience and accuracy in a project. For example, a financial consultant. They only need research and also the behavior of their clients. Then, he just has to deduce what activities he should not need to do anymore.

Financial statements

Financial reports are the result of an accounting process that can be used as a tool to communicate between financial data or activities of a company and parties with an interest in company data or activities. Financial reports consist of 4 main types of financial reports, namely:

  • Income statement (Statement of Profit or Loss)
  • Report of changes in capital / Report of changes in equity / statement of owner’s equity (Statement of Changes in Equity)
  • Balance Sheet (Statement of Financial Position)
  • Statement of cash flow (Statement of Cash Flows)

Service Company Financial Statements

In running its business, service companies also carry out transaction activities and also have service company financial reports that are different from those of trading companies. Financial statements can be clearly identified from the information obtained by a company. Service company financial statements have components such as the following:

  • Reporting company name or other identity.
  • The scope of financial statements, whether it includes only one entity or several entities.
  • The date or period covered by the financial statements, whichever is more appropriate for each component of the financial statements.
  • Reporting currency.
  • The unit of numbers used in the presentation of financial statements.

Example of a Service Company Financial Report

The financial statements of service companies, which are presented at the end of each period, consist of an income statement, a report on changes in capital, a cash flow statement and a balance sheet.

a. Income Statement

The income statement is the financial statement of a service company that shows the income and expenses of a company in one accounting period. The company’s income statement is presented and contains the elements of financial performance that are necessary for fair presentation. There are two forms of income statement that are commonly used, namely:

·         Direct Form (Single Step)

In this form, all income is added and all expenses are added. From the difference between total income and total expenses, it can be seen the amount of operating profit or loss.

·         Multiple Steps

In this form, the income statement provides a grouping of types of income and types of expenses. Where income is differentiated into operating income and income outside the business, and expenses are also differentiated into operating expenses and expenses outside the business. Then, from the difference between income and expenses, the company’s profit or loss is obtained.

b. Statement of Changes in Capital ( Capital Statement )

Reports on changes in capital are financial statements of service companies that show the reasons for changes in capital, from initial capital to period end capital. In the statement of changes in capital, it is indicated by a calculation between the owner’s capital at the beginning of the period plus net income as stated in the profit / loss statement, then deducted by the owner’s personal taking ( prive ), so that the owner’s capital at the end of the period is obtained.

c. Balance Sheet

A balance sheet is a financial statement for a service company that shows the financial condition or financial position of a company at the end of the period. The financial position referred to consists of the amount of access, obligations and capital. In preparing the balance sheet must be sorted according to the level of liquidity or level of smoothness. Current accounts must prioritize the preparation and accounts that are less current are compiled under it. The balance sheet can be arranged in two forms, namely the staff form and the skontro form.

  • Report Form (Stafel)

A balance sheet that is arranged in a staphylactic form means that the balance sheet is presented with assets or assets at the top and liabilities and capital at the bottom. Staphone form of balance is often referred to as report form / vertical.

BALANCE 

PT ALAM MAKMUR

PEROD 31 DECEMBER 2019

Account No Estimates / Accounts Debit Credit
Cash Rp. 180,000,000.-
Crane lease receivables Rp. 15,000,000.00
Equipment Rp. 5,250,000.00
Office inventory Rp. 6,750,000.00
Accumulated depreciation in office inventory Rp. 400,000.00
Heavy equipment Rp. 60,000,000.00
Accumulated depreciation of heavy equipment Rp. 1,000,000.00
Prepaid building rent Rp. 20,550,125.00
Accounts payable Rp. 20,000,000.00
Capital Rp. 250,000,000.-
Profit for the current month Rp. 16,150,125.00
total Rp. 286,150,125.00 Rp. 286,150,125.-
  • Form T (Skontro) or Form of Account

The balance sheet, which is arranged in the form of T, means the presentation of assets or assets on the left, while liabilities and capital are on the right. The balance sheet in the outline form is often referred to as one-sided form.

BALANCE 

PT ALAM MAKMUR

PEROD 31 DECEMBER 2019

Account No Estimates / Accounts total Account no Estimate total
Cash Rp. 180,000,000, – Accounts payable Rp. 20,000,000.00
Crane lease receivables Rp. 15,000,000.00
Equipment Rp. 5,250,000.00 Capital Rp. 250,000,000.00
Office inventory Rp. 6,750,000.00 Profit for the current month Rp. 16,150,125.00
Accumulated depreciation in office inventory Rp. 400,000.00
Heavy equipment Rp.60,000,000.00
Accumulated depreciation of heavy equipment Rp. 1,000,000.00
Prepaid building rent Rp. 20,550,125.00
total Rp. 286,150,125.00 total Rp. 286,150,125.00

 

d. Statement of Cash Flows

A cash flow statement is a financial statement for a service company that shows the inflows and outflows of cash and cash equivalents. Cash represents cash or cash balances and checking accounts, while cash equivalents are short-term, liquid investments that can quickly become cash. The cash flow statement must report cash flows during a certain period. It can be classified according to operating, investing and financing activities, according to the company’s business. Classification by activity aims to provide information that enables report users to assess the effect of these activities on the company’s financial position and on the amount of cash and cash equivalents.

·         Cash Flows from Operating Activities

Cash flows from operating activities are primarily derived from company revenues. Therefore, these cash flows generally come from transactions and other events that affect the determination of net profit or loss.

Cash flows from operating activities include:

  1. Cash receipts from the sale of goods or services,
  2. Cash receipts from royalties, fees, commissions, and other income,
  3. Cash payments to suppliers of goods or services,
  4. Payments to employees,
  5. Cash receipts and payments by insurance companies in connection with premiums, claims, annuities and other insurance benefits,
  6. Cash payments or income tax refunds unless specifically identified as part of financing and investing activities,
  7. Receipt and payment of cash from contracts entered into for the purpose of trading and business transactions.

·         Cash Flows from Investing Activities

Cash flows from investing activities reflect cash receipts and disbursements relating to resources aimed at generating future income and cash flows.

Cash flows from investing activities include:

  1. Payment of cash to purchase property, plant and equipment, intangible assets and other long-term assets, including capitalized development costs and self-constructed assets,
  2. Cash receipts from the sale of land, buildings, equipment, intangible assets and other long-term assets,
  3. Acquisition of shares or other company’s financial instruments,
  4. Advances from loans made to other parties and repayment (except for those made by financial institutions),
  5. Cash payments in connection with futures contracts, forward contracts, option contracts and swap contracts except when the contracts are entered into for trading purposes (dealing or trading), or if the payments are classified as a financing activity.

·         Cash Flows from Financing Activities

Separate disclosure of cash flows arising from financing activities is necessary because it is useful for predicting claims against future cash flows by suppliers of the company’s capital. Cash flows from financing activities include:

  1. Cash receipts from issuance of shares or other capital instruments, Cash payments to shareholders to withdraw or redeem company shares,
  2. Cash receipts from issuance of bonds, loans, notes, mortgages and other loans,
  3. Repayment of loans,
  4. Cash payments by the lessee to reduce the balance of the liabilities associated with a finance lease The following is an example of a service company financial statement.

 

Leave a Comment