Category: Accounting

When you outsource your accounting tasks to an accounting firm in Johor Bahru, the accountants will not only record business transactions timely but also prepare the essential financial statements for you. The income statement (Also see What is an Income Statement?) is one of the crucial financial reports that all businesses should generate. It provides the summary for all revenue earned and expenses incurred in a specific timeframe.

The income statement aims to determine the company’s profit or loss, and it acts as a measure of the business activities that it has carried out. Thus, the main purpose of studying the company’s income statement (Also see Why Do We Need the Income Statement?) is to let the readers get a clear picture of the revenue and expenses of the company in that accounting period. By looking at this statement, one will be able to determine whether the company is profitable and whether it can earn recurring revenues from its continuous operations.

The first line item in the income statement (Also see The Income Statement and the Balance Sheet) is the total sales revenue. This amount shows the sum of money that the sales of products or services have brought to the business. Note that business owners who apply the accrual basis of accounting should recognise the revenue (Also see Ways to Increase Your Business Revenue) earned in their books of accounts even though they have not received cash from the sale to be in line with the revenue recognition principle.

Some companies may include sales discount and sales returns in their income statement. Sales discount refers to a price reduction that the company offers to its customers if they pay the bills early. Sales returns are the goods that the customers send back to the company due to reasons such as defective products, products sent are not what they have ordered, the company has sent extra goods to them, and so on. After deducting the amounts of sales discounts or sales returns from gross sales, we will get the sum of net sales.

In the income statement, you will see the cost of goods sold too. This is the sum of money the company pays for the merchandise sold in the accounting period. To calculate the gross profit earned, one should deduct the cost of goods sold from the company’s net sales. The gross profit and gross profit margin are both useful in helping the management to understand the performance of the company and plan for future business operations.

The income statement will also show the selling and administrative costs incurred in the normal course of business. Both are the operating expenses of the business. After knowing the sum of operating expenses incurred, one will be able to work out the operating income of a business by calculating the difference between the gross profit and the operating expenses. This is the income that the company has generated from its core business activities.

Also, you may see interest income and interest expense in the income statement. Interest income refers to the interest earned by the company by keeping their excess cash in the bank accounts. As against, interest expense is the interest that the company needs to pay on the money that they have borrowed from the banks or financial institutions.

There will be a part that records the income before tax of the business too. This is the sum of money the company has earned from its operating and non-operating activities before including the sum of income taxes the business should pay. In some cases, people may choose to compare two companies by comparing their income before tax because their tax rates may not be the same.

Finally, net income is the line item that will appear as the bottom line in the income statement. The is the amount remaining after the company has added other revenues to it, as well as has deducted operating expenses, other expenses and income taxes from it. This is the final figure, and the accountant will transfer it to the company’s retained earnings.

Overhead costs refer to those costs that are not directly related to the production and manufacturing process of a company. Therefore, these are the indirect costs that the company needs to pay whether there is any production. Some business owners (Also see Characteristics of Successful Business Owners) find it challenging to account for the expenses related to their business activities. If they do not find a way to solve this problem, this will eventually lead to messy books, especially the calculations that are related to the calculation of costs. Hence, to avoid such a situation from happening, business owners may consider seeking help from an accounting firm in Johor Bahru.

Overhead costs are the costs the company has spent on indirect labour, indirect material, as well as other operating expenses like the rentals, utilities and so on. These costs are related to the daily business operations that the company has carried out. Yet, it is unable to charge these expenses (Also see Direct Expenses and Indirect Expenses) directly to any of its products or services offered to the customers. This means that the indirect costs cannot be determined with a particular cost per unit of a product or a service.

Indirect costs vary among different companies. They play an essential role in ensuring that the business (Also see Questions You Should Answer Before You Start Your Own Business) can run smoothly. They may be classified as fixed costs or variable costs depending on their behaviour. The former will not be affected by the level of output while the latter will vary with the production levels. Some examples of fixed costs include rental and depreciation, and examples for the second are costs incurred for shipping, production supplies and so on.

If we classify the overhead costs according to their functions, there are a few different types of overhead costs. Manufacturing overheads include all kinds of indirect costs like indirect labour, indirect material, as well as other indirect expenses. These are the costs incurred during the manufacturing processes. Another type of cost is the selling and distribution overheads. These are the costs incurred when the company markets and sends the products. Administrative overheads, on the other hand, refer to the costs that the company has incurred on administrative and accounting tasks. These are the costs that it would not be able to allocate to each unit of its products.

To allocate the overhead costs, business owners need to select an approximate cost centre. They should consider a few factors when they are doing this, which include information about the nature of the cost as well as the controls required. Then, they need to determine the cost that is attributable to a specific cost centre. The next step is cost apportionment, where they should allocate the costs in different cost centres according to the estimated benefits that each cost centre will receive.

Business owners should always keep a tight grip on the overhead costs, and they should make an effort to lower these costs. By doing so, the company will be able to price the products and services it provides more efficiently. Thus, this increases the competitiveness of the business (Also see How Can Bookkeeping Services Indicate Business Health?) when compared to its competitors.

For business owners who are not familiar with accounting, one of the biggest issues they may encounter when recording business transactions is the categorisation. As an example, they may not know how to classify the assets their company owns, or they are not sure about how they should group the revenue (Also see Ways to Increase Your Business Revenue) and expenses correctly. If you are one of them, why not consider hiring an bookkeeping services in Singapore? The professionals will help you to record business transactions as well as generate financial statements without costing you much compared to the cost you need to hire a full-time in-house accountant.

In this article, we will shed light on unearned revenue (Also see Introduction to Accrued Revenue). It refers to the amount of payment that the company has received in advance for the goods and services that it will provide to the clients in the future. Unearned revenue falls under the category of liability as the company has received the payment for the work that it has not performed.

One should categorise unearned revenue as the liability of the company because the company has received the payment in advance without providing the goods or services to the party which has made the payment. According to the accrual concept of accounting (Also see Accounting principles: Accrual concept), business owners should not recognise the payment as its income until their company has provided the goods or services to the client. Hence, they need to use a different method to record the unearned revenue, instead of using the same way of how they record the earned revenue.

The payment that the company has received in advance will become the company’s liability until it delivers the goods or provides the service to the party. The advance obtained is the debt that the company owes to the customer. Thus, the unearned revenue will appear as the company’s liability on the balance sheet (Also see The Income Statement and the Balance Sheet).

As soon as the company delivers the products or services to the customer, the unearned revenue will become its revenue. At this stage, the revenue will become the company’s income and will no longer be the company’s liability. Business owners should make the corresponding adjustments in the financial statements too, which is to record the revenue as an income in the profit and loss statement.

As a company owner, you need to comprehend the relationship between the financial statements (Also see Introduction to Financial Statements) so that you can analyse your company’s financial status effectively. The financial statements appear in various pages of the company annual report, and the connections between the statements are not clearly stated. Hence, let’s discover the relationship between the income sheet and the balance sheet. (Also see Basics on Balance Sheet )

You will see the relationship between the income statement and the balance sheet when recording an expenditure or a sale using double-entry accounting. (Also see What is Double-Entry Bookkeeping?) In double-entry accounting, if sales increase, liability will decrease or assets will increase, whereas costs will reduce assets or increase liability.

This suggests that one side of every sale entry or expenditure is recorded in the balance sheet, and the other side is recorded in the income statement. Thus, the income statements and the balance sheet are inseparable but reported individually.

To comprehend the relationship between an income statement and a balance sheet, think about the following.

1. Your company requires to keep a working cash balance if you make sales and incur expenses in making the sales.
2. Credit sales that are recorded in the income statement creates accounts receivables (Also see What are Trade Receivables and Non-trade Receivables?) in the balance sheet.
3. To make sales (which is recorded in the income statement), your company should have inventory (which is recorded in the balance sheet).
4. To obtain inventory, you need to buy goods on credit and this produces account receivable.
5. Depreciation is recorded in the balance sheet and also in the accumulated depreciation contra account in the income statement.

The operating expense (which is recorded in the income statement) is a broad category selling, general expenses and administrative. These expenses appear in many accounts in the balance sheet, such as the accrued expenses account, accounts payable, and more.

From the relationship between the income statement and the balance sheet, we know that every income or expense recorded in the income statement appears in the balance sheet. Therefore, here is a new question, is the income statement the same as the balance sheet?

A balance sheet shows the company finances at one particular time. It consists of three reports that are liabilities, assets and owner’s equity. On the other hand, the income statement reveals all of your company’s incomes and expenses. Its primary goal is to determine the cash flow generated or lost by your company in a given duration.

If you are still uncertain about the relationship between the income statement and the balance sheet, please seek guidance from accounting service in Singapore .

Importance of Statement of Comprehensive Income

Statement of Comprehensive Income, also referred to as profit and loss statement ( Also see Profit and Loss Account ) is one of a deliverable you could receive from an accounting service in Johor Bahru. It offers you a summary of your company’s profitability and the direction the company is heading.

Business owners ( Also see Characteristics of Successful Business Owners) would wish to know where their money goes. A Statement of Comprehensive Income is an efficient method of identifying how and where you use the money.

This statement assists a company in evaluating development by summarizing records of profits and losses over a duration, which will provide information to the stakeholders, owners and the management. This could either be prepared monthly, annually or quarterly.

Such records are essential because these are useful in identifying areas or items that the business invests the majority of its resources. It is much easier for the business to work on methods and ponder on alternatives to reduce or minimize the expenditures. For instance, if a company spends most on phone calls, a plan can be made with the service providers to obtain the best deals.

This statement enhances the transparency of business where the stakeholders and the public could access to the financial status of the company when reading together Cash Flow Statement. (Also see Bookkeeping – Cash flow Statement) Such a report also plays a significant role in persuading investors.

In loan, the majority of lenders would wish to read the Statement of Comprehensive Income along with the Statement of Financial Position (Also see Introduction to Financial Statements) , which is the balance sheet of the company. This is a long journey to advice on the business’s capability to repay, and if the financial investment is economically viable.

The Statement of Comprehensive Income is one of the beginning point or the source for an audit task. Clear records make it simpler to explain the financial engagements of any companies to auditors.

The Statement of Comprehensive Income makes it possible for businesses to prepare useful and precise forecasts. Projections are important in every business; it assists the company in protecting itself from preventable losses. Allocations could be made according to the records from the statements.