Financial Statement

What is this ?

Every business requires a good financial records to describe financial activities. Financial records are a simple form of financial statements. Financial records only recorded sales activities, expenditures, cash amount, and receivables. In contrast to the financial records, financial statements provide additional information such as cost of goods sold, inventory, fixed assets owned by the company, amount of debt, and capital.

There are two methods of accounting used in recording of financial statements :

1. Cash-based Accounting

This accounting method will only report the results of operations when cash actually been received or paid. Likewise, the costs incurred by the company will only be recorded when the cash is paid.

2. Accrual-based Accounting

This accounting method recorded revenue when the sale has been made (although cash has not been received or are still in the form of receivables). Expenditures is reported at the same time with the recording of revenue. Various concepts of recognition and matching is a central principle in this modern accounting methods.

What is presented in the financial statements ?

Financial statement is divided into two main sections namely the income statement and balance sheet. Income statement noting the activities that occur during a certain period, for example the sale of goods that have occurred since January 1 to June 30. Meanwhile, the balance sheet shows the balance of various accounts such as cash, inventories, and accounts receivable in the current period of financial statement. For example, a balance sheet at December 31, 2015 shows the position of cash, accounts receivable, and inventory recorded on December 31, 2015.

Income statement stating sales, and expenses of the company at a certain period.

1. Sales

All the company's revenue from trading activities.

2. Cost of Goods Sold

The amount originally paid for goods sold.

3. Gross Profit

The difference between sales and cost of sales

4. Operating costs

Costs incurred in business operations such as staff salaries, telephone charges, transportation costs, and other expenses not included in cost of goods sold.

5. Profit

The amount remaining after subtracting the cost of goods sold and operating expenses from sales.

Balance sheet on financial statement consists of three parts:

1. Assets

Consisting of current assets (cash, accounts receivable, and inventory) and fixed assets.

2. Liabilities

Consisting of current liabilities (accounts payable, short-term bank loans and current portion of long-term debt) and long-term debt (long-term bank loans, bonds, and leasing).

3. Capital owners

Consists of paid-in capital, retained earnings, and dividen.

Below is a simple example of the financial statements which are made one small business company.