The Ultimate Accounting Guide for Indonesian Companies

All in all, efficiently running a business includes understanding important terms that will enable the company to maintain its financial stability accounting in Indonesia. While most firms have an accountant to assist them in record-keeping, basic terms should still be familiar as they have to be used in business.

Besides knowing the different accounting terms, you should also understand how it is used in regular business practice.

Accounting in Indonesia, these terms are usually used and applied in the early stages of business development when new owners begin their venture into entrepreneurship. Besides it enables owners to recognise the difference between profit and loss, debts and credit, income, and expenses, etc. This applies to all types of business entities in Indonesia.

What is a Financial Statement

In this case, financial statements usually provide an overview of the business details including:

1. Statement of Financial Position (SFP)
2. Statement of Comprehensive Income (SCI)
3. Statement of Cash Flows (SCF)

These documents will then be summarised into the financial statement and presented to the business owners to aid the upper management in making important decisions for the business and controlling assets

Cash Flow Financial Reports

Indeed, accounting in Indonesia it’s a report that shows detailed information on how and where the cash of a business is being used. Unless there can be different types of cash flow used to run the daily operations depending on the nature of the business.

Meanwhile, financial statements act as communication data as they are shared throughout the whole business and are being reviewed to provide financial decisions and analysis by the accounting department for the business.

Balance sheet

While known as a “statement of financial position”, a balance sheet is designed to reflect the value of a company or organisation. The balance sheet reveals the company’s assets, liabilities, as well as the owners’ equity (net worth) as of a particular date and it goes with two other key financial statements, an income statement and a statement of cash flow.

A balance sheet is split into two portions and ensures both sides are equal, with this main formula:

In other words, the company’s assets, or the means to operate the business, are balanced by the business’s financial obligations and equity investment brought into the business and its retained earnings.

Statement of Comprehensive Income

This is also known as the Profit & Loss statement. Although, they reflect the company’s revenue for the year based on:

• The number of sales they made
• The amount of expenses incurred

After which, after all the amount has been consolidated, profit or loss is determined by the formula:

What are the Key Terms Found in a Financial Statement?

The terms below are some of the most common terms while preparing and analysing the different financial statements!

1. Assets

Eventually, accounting in Indonesia are items that your company owns, consisting of financial assets, current assets, fixed assets, and intangible assets.

Financial assets include:

• Cash
• Bonds
• Investments
• Funds
• Deposit

Fixed assets include:

• Machines
• Plants & equipment
• Holdings
• Buildings

Basically, intangible assets are identifiable non-monetary assets without physical substance which include computer software, licenses, patents etc.

2. Liabilities

Items that your company owes to the other party, but consist of long-term and short-term liabilities. Liabilities are usually recorded as follows:

• Long-term liabilities include bank loans that are not repayable within a year
• Short-term liabilities include trade payables, rental, loans repayable within a year, accrued expenses etc.

3. Equity

• Equity is assets ‘ leftover’ after being deducted from the company’s debts have been paid off.
• For example, A business owner purchased a machine for IDR 500,000,000 and is left with a bank loan of IDR 100,000,000. This means that the owner’s equity is $400,000,000.

4. Income & Expenses

As a result, income and expenses are reflected on the Profit & Loss statement of a business over some time. For most businesses, the source of income is derived from the sales of goods and services as well as other additional income such as:

• Bank interests
• Commission income
• Gains from sales of non-current assets

Moreover, accounting in Indonesia can be disclosed separately under ‘other income’ in the P&L statement. On the other hand, expenses are costs a business has to incur to generate income for the company. These include:

• Cost of goods sold
• Staff salaries
• Interest expense or loss from sales of non-current assets

5. Cash flows

Hence, cash flows refer to the movement of money flowing in and out of the business and are categorised into 3 different types namely:

1. Operating cash flow: Includes all cash activities relating to net income such as cash generated from sales (income) or cash paid for merchandise (expense)
2. Investing cash flow: Includes all cash activities relating to non-current assets such as long-term investments, property, plant, equipment
3. Financing cash flow: Include all case activities related to non-current liabilities and owners’ equity such as stock sales, dividend payments and principal amount of long-term debts

How to Prepare a Financial Statement

However, financial statements are documents that have to be filed as a part of preparing a company’s annual returns. It should include all transactions that affected the equity of the company during the period in question.

The purpose of annual returns is to give any potential partners, creditors, or investors a clear view of the profitability of the business, and it also allows them to make informative decisions, planning and budgeting for the business’s future financial years.

Examples of the transactions which are usually included are dividends, owner’s investments, and mergers. On top of that, all transactions typically include explanatory notes alongside them.