Understanding financial statements is important for businesses of all sizes, as they clearly show a company’s financial health and performance. These statements are essential tools for making informed decisions, whether it’s for internal management, investors, or regulatory compliance.

Financial statements help track income, expenses, assets, and liabilities and offer insights into a company’s financial stability.

What is a financial statement in Indonesia?

Financial statements provide an insight into a company’s financial position over 12 months, which is essential for identifying potential risks, including financial statement fraud.

They include details about the company’s assets and liabilities, as well as information on profits or losses and changes in equity. These financial statements must be approved by the general meeting of shareholders or other appropriate authorities.

Types of financial statement

Every business should be familiar with several key financial statement documents, including various financial statement examples. These documents are not just necessary for compliance or best practices; they are crucial for effectively managing your finances. Below are the primary documents you should be aware of:

Income statement

The income statement, considered one of a business’s most critical documents, tracks profits, and incoming revenue, outlining income and expenses over a specified period. It is also known as a profit and loss statement.

By factoring in revenue, losses, and expenditures, the income statement reveals whether the company has generated a profit or incurred a loss.

Cash flow statement

The cash flow statement details how money flows in and out of your business, providing insight into the available working capital at any given moment.

This statement is vital for understanding how quickly you can access cash, if necessary. It does not account for items like raw materials or purchases made on credit but not yet paid for.

Balance sheet

The balance sheet, or the statement of financial position, presents three essential components: assets, liabilities, and equity. It reflects a business’s current financial value for the period it covers. Analyzing your balance sheet helps you assess whether you can meet your financial obligations.

Notes to financial statements

As mandated by the International Financial Reporting Standards (IFRS), this document provides additional context for the information contained in the other financial statements.

For example, while your assets are listed on the balance sheet, the notes in financial reporting will detail what those assets include. This information is essential to ensure compliance with relevant standards and regulations.

Statement of changes in equity

This document outlines the modifications to your company’s share capital, retained earnings, and accumulated reserves. For sole proprietorships, it reflects changes in the owner’s equity, while for partnerships, it shows alterations in both partners’ equity.

The statement details how equity shares have shifted among shareholders in a corporate context.

Read more: Claiming your tax refund in Indonesia: Tips and procedures

What types of companies need to prepare financial statements

Companies obligated to prepare audited financial statements include:

• Limited Liability Companies that fulfill at least one of the following criteria:
  • Publicly listed companies.
  • Entities engaged in public fund management activities, such as banks, insurance companies, pension funds, and investment managers.
  • Companies that have issued debt recognition statements.
  • Companies with total assets exceeding IDR 25 billion.
  • Companies with annual gross revenue surpassing IDR 50 billion.
  • Debtors whose banks mandate audited annual financial reports as part of their loan agreements.
• State-Owned Enterprises (BUMN/BUMD)
• Foreign Investment Companies (PMA) must submit financial reports as part of their regulatory obligations.
• Companies in certain industries or sectors, such as mining, oil, and gas, require audited financial statements as per specific government regulations.
• Companies seeking financing from investors or financial institutions, as audited financial statements, are often a prerequisite for raising capital or securing loans.
• Nonprofit organizations that meet specific financial thresholds or receive public donations may be required to provide audited financial reports to ensure transparency and regulation compliance.

Elements of financial statement

The primary components of financial statements, essential for practical financial statement analysis, include:

Assets

These represent items of economic value that are anticipated to provide future benefits. Common examples include accounts receivable, inventory, and fixed assets.

Liabilities

These are legal obligations that a company owes to another entity or individual. Typical examples encompass accounts payable, taxes payable, and wages payable.

Equity

This refers to the total investment made by a business’s owners, adjusted for any dividend payments and any retained earnings accumulated over time.

Revenue

This indicates increased assets or decreased liabilities resulting from delivering services or products to customers. It measures a business’s gross activities, including product sales, service revenue, and subscription fees.

Expenses

These reflect the decrease in the value of an asset as it is utilized to generate revenue. Examples include interest expenses, salary expenses, and utility costs. Depreciation expense represents the reduction in the value of a fixed asset.

Assets, liabilities, and equity are presented in the balance sheet, while revenues and expenses are detailed in the income statement. Changes in these components are reflected in the statement of cash flows.

When should you submit the financial statement?

Annual financial statements must be submitted six months after the conclusion of the financial year. They should be forwarded to the Ministry of Trade through its official website. Once submitted, the processing time is typically around five working days.

Not complying with accounting standards and failing to meet obligations can lead to several repercussions, including:

• A written warning
• The revocation of the company’s business and/or operational license or commercial permit
• A recommendation for the revocation of the company’s business and/or operational license or commercial permit

Warnings will be issued within 14 days and can be given up to three times. Mitigate the risk of non-compliance with accounting standards and Indonesian regulations by partnering with InCorp. Our financial and operational resilience services ensure sustainable growth and effective risk management.

Benefits of financial statements

Here are several benefits of preparing and utilizing financial statements:

• They assist stakeholders in monitoring financial performance and pinpointing any profitability issues.
• They provide insights into expenditures by illustrating how the company generates cash, the sources of that cash, and its utilization.
• They demonstrate the company’s capacity to meet its debt obligations.
• They facilitate informed decision-making, essential for annual reports important to investors and lenders.
• They identify areas where the business can enhance its performance.

Ensure compliance and financial integrity with InCorp

Ensure your company’s financial integrity and transparency with InCorp’s expert financial audit services. We guarantee that all your accounting activities are accurately recorded and fully compliant with Indonesian law.

Our services include:

• Financial audits – Ensuring accuracy and compliance with Indonesian regulations.
• Financial reporting – Providing clear insights into your company’s financial health.
• Risk assessment & management – Identifying potential financial risks and offering solutions.
• Compliance assurance – Keeping your financial statements in line with all legal requirements.

Click the button below to maintain transparency and financial integrity for your company.

More on Finance