About Financial Statement
What is Financial Statement ?
Financial statement is a product of accounting cycle. It becomes an important part in business since it reflects the condition of entity, especially the financial information of entity’s condition. Stakeholders usually see the prospects of an entity from this kind of statement. The implication is stakeholder’s use this statement as a considering of making economic decision.
There are some definitions of financial statement. Here they are:
1. Financial Statement is formal record of financial activities of business, person, or entity in certain period.
2. According to Sundjaya n barlian (2001:4) financial statement is statement that shows the result of accounting process which is used as communication tool for stakeholders.
3. A written report which quantitatively describes the financial health of a company. This includes an income statement and a balance sheet, and often also includes a cash flow statement. Financial statements are usually compiled on a quarterly and annual basis.
4. Income and expenses for a particular accounting period. The report usually consists of a balance sheet, income statement and statement of cash flows
5. Document reporting business financial performance and resource
6. A document showing credits and debits
7. Summaries of accounts to provide information for interested parties.
Difference between financial statement and financial reporting
Sometimes it is confusing for people to distinguish between financial statement and financial reporting. It seems that two terms are same. But the reality, both are different. And since it is an important basic knowledge in accounting, let me tell you about the difference.
According to the definition, financial statement is a financial information of entity in a certain period that shows performance of that entity. While financial reporting is all aspects which related to provision and financial information. The aspects are involved organization (such as accounting standard , SEC, AICPA) and applicable regulation (such as GAAP).
In a short, financial statement is a part of financial reporting. it is just a product of financial reporting. while financial reporting is process to produce financial statement. As an illustration, to make financial statement, we should know the standard use. Usually each country has different standard, America for example, use Generally Accepted Accounting Standards (GAAP) as its accounting standards, but Indonesia use Pernyataan Standar Akuntansi Keuangan (PSAK) as its standard. Then, it will also different in other countries. Implication of different standard in each country will produce different financial statement (it is because each country has its own accounting policy). That’s why every country have their different style of financial statement.
Purpose of financial statement
There are some purposes of making financial statement. Here are some purposes of financial statement based on some sources.
Based on Prinsip Akuntansi Indonesia (1984), purposes of financial statement are as following:
1. To give reliable information about assets, liabilities, and equity of the entity.
2. To give reliable information about changing in net assets (assets-liabilities) of entity that appear from activity.
3. To give financial information that help stakeholders to estimate potential of entity in earning profit.
4. To give other important information about changing in assets and liabilities, such as information about activity in financing and investing.
5. To disclose other information which related to relevant financial statement to stakeholders, like information about accounting plicy in entity.
According to Standar Akuntansi Keuangan (SAK no 5, accounting standard that use in Indonesia), the purpose of financial statement is to provide financial, performance, and information changing in financial position that useful for stakeholders to make decision
According to Statement of Basic Accounting Theory (Asobat), purpose of financial statement are as following:
1. To make a decision that related to use of limited asset and to make a goal
2. To direct and control human resources and other factor production effectively
3. To maintain and secure asset
4. To help function and social control
While based on Accounting Priciples Board (APB) statement no 4, purpose of financial statements are divided into two group, general purpose and special purpose.
General purpose of financial statement is to provide reliability information of financial resources and liabilities. Then special purpose is to give information about assets. Liabilities, net assets, earnings in the future, change in assets and liabilities and other relevant information.
Elements of financial statement
There are 10 elements that compose financial statement. These elements will form types of financial statement. They are as the following:
1. Asset : resource that controlled by the entity as a result of past event and from which economic benefits are expected.
2. Liabilities : present obligation as a result of past events. And the settlement are expected to cause outflow from entity’s resources.
3. Equity : residual interest from entity’s asset after deducting of all liabilities
4. Net Income : increase in economics benefit in a period in the form of cash inflow or enhancements assets or decrease in liabilities that result increase in equity (equity is not from owner’s contribution)
5. Expense : decrease in economics benefit in a period in the form of cash outflows or decrease in assets or increase in liabilities that result decrease in equity (equity is not from distribution to owner)
6. Gain : other post that fulfilled the definition of revenue and it is probably appear or not appear in common activity of entity, for example current asset, revaluation, increase in amount of long term assets
7. Loses : other post that fulfilled the definition of expense and it is probably appear or not appear in non common activity, for example disposal asset, loss from disaster
8. Revenue : income that comes from common activity. It is usually has different name, like fee, interest revenue, dividend revenue, royalty, and rent revenue.
9. Contributed capital : capital received from investor for stock, equal to capital stock plus contributed capital.
10. Distributions : Payment of earnings to owners of a business organization in the form of a Dividend
Types of financial statement
There are five basics of financial statement:
1. Balance sheet
is a summary of the financial balances of a sole proprietorship, a business partnership or a company. Sometimes balance sheet is also called as statement of financial position. Balance sheet is formed by three elements, as following: assets, liabilities, and owner’s equity. Of the four basic financial statements, the balance sheet is the only statement which applies to a single point in time of a business' calendar year.
2. Income statement
is a company's financial statement that indicates how the revenue (money received from the sale of products and services before expenses are taken out, also known as the "top line") is transformed into the net income (the result after all revenues and expenses have been accounted for, also known as the "bottom line"). It displays the revenues recognized for a specific period, and the cost and expenses charged against these revenues, including write-offs (e.g., depreciation and amortization of various assets) and taxes.
3. Statement of retained earning
Financial statement showing the beginning balance, additions to and deductions from, and the ending balance of shareholders’ equity account for a specified period. This kind of statement is also called as shareholder’s equity.
4. Statement of cash flow
is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing, and financing activities.
5. Notes to financial statement
It is additional notes and information added to the end of the financial statements to supplement the reader with more information. Notes to Financial Statements help explain the computation of specific items in the financial statements as well as provide a more comprehensive assessment of a company's financial condition.
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