Relationship between Income Statement, Changes in Capital, and Balance Sheet

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Startup, Business, Businessman, Notebook

Financial statements are the results of the accounting process that can be used as a communication tool between a company’s financial data with parties interested in the company’s data or activities.

Through the financial statements, the company will get various insights related to financial conditions and ongoing business. Not only that, companies can have a reference to compare financial conditions in a certain period, for example the comparison of this month and one month before.

The results of the comparison can be used as a reference to find out whether the company’s business is on the right track and has increased profits. This information can also be used as consideration in making strategic decisions for the progress of the company.

Seeing the various benefits that can be obtained, it is important for companies to have good financial statements. There are several types of financial statements that need to be prepared by the company. Financial statements such as profit and loss statements, statements of changes in capital, and balance sheets, are related to one another.

Differences in the Income Statement, Changes in Capital, and Balance Sheet

a. According to Ardhykartansa, the income statement is a report that describes the results that have been achieved by the company and the expenses incurred during a certain period. the final result of the income statement is net income or net loss.

b. Capital change report is a report that shows the source and use of company capital that can be calculated after knowing the results of the income statement.

c. A balance sheet is a report that shows the amount of assets, debt, and capital of a company on a certain date, which can be written after knowing the changes in capital from the report on changes in capital.

Examples of Balance Sheet Making Schemes from the Income Statement and Changes in Capital

a. Income statement
This report presents the company’s revenue, expenses, and profit or loss for a certain period. From this report, you can find out the company’s financial performance, whether experiencing gains or losses. To make an income statement, the only accounts needed are the Income and Expense accounts in the ledger.

Bella Salon

Income statement

December 2017 period

Account

Debit

Credit

Salon income

5,450,000

Operating Expenses:

    Rental expenses

300,000

    Advertising expenses

50,000

    Salary expense

470,000

    Tel & Electric Load

150,000

    Equipment Expense

1,500,000

    Salon equipment depreciation expense

1,300,000

Total Operating Expenses

(3,770,000)

Net profit

1,680,000

 

The result can be seen that Bella Salon’s gross profit is IDR 5,450,000 and expenses made are IDR 3,770,000. So as a whole, in that period Bella Salon got a net income of Rp1,630,000

b. Statement of changes in capital

This report is needed to find out the progress or decline of the company’s condition. If the company’s capital increases, it means there is progress, and vice versa. If the initial capital is greater than the final capital, this shows that the company is experiencing a setback.

So, this capital change report tells of changes that occur in the capital (equity) of the company owner. This change is caused by the results of the company’s operations in a certain period. See examples of capital change reports here. Making this report requires data on the nominal amount of initial capital, the amount of net income, prizes, and additional capital.

c. Balance
This financial report presents information about the company’s financial position on a certain date. Here is an example of a balance sheet.

Bella Salon

Balance

December 2017 period

ASSETS

LIABILITIES

Current asset

Current Debt

Cash

6,600,000

Accounts payable

2,500,000

Accounts Receivable

1,750,000

Salary debt

1,750,000

Equipment

5,500,000

Amount of Current Debt

4,250,000

Prepaid lease

900,000

Total Current Assets

14,750,000

Fixed assets

Capital

Equipment

13,000,000

Bella Salon Capital

23,780,000

Accumulated depreciation of equipment

(1,300,000)

Total Fixed Assets

11,700,000

Total Capital

23,780,000

Total Assets

26,450,000

Total Liabilities & Capital

28,030,000

Before making a balance sheet, you must make an income statement and a statement of changes in capital in advance. Because of the interrelationship in the accounting process, it will be very easy if every financial report or company transaction is recorded automatically in accounting software that can directly process it into various financial statements without the need to enter data repeatedly.

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