In establishing any business, KH Friend certainly needs capital for operational purposes. Capital itself is divided into two types, namely initial capital and final capital. Initial capital is usually used at the beginning of business establishment. Meanwhile, final capital is the amount of initial capital summed up with profit or loss, and is usually used to run the business in the next period. The calculation of final capital is important because it is one of the main elements in business financial accounting. In addition, the final capital calculation can also help KH Pals in seeing business development. Well, do you already know what is the final capital and how to calculate it? So that you don’t get it wrong, let’s immediately see the explanation in the following article!
What is Final Capital?
Ending capital is the amount of funds a business or company has at the end of an accounting period. This capital is obtained by calculating the initial capital and then summing it up with the profit or loss of the business. Later, this capital will be used as initial capital in the next business period. If the business previously made a profit, then its initial capital balance increases. Conversely, if the business loses, it will reduce the value of the business capital balance.
Final Capital Calculation Components
Before knowing how to calculate the final capital, you need to understand what components are included in the final capital calculation. What are the components that are also calculated in the final capital? Here is the explanation.
- Starting Capital
As the name implies, start-up capital is capital that is allocated at the beginning of the business. Where the initial capital is the entire capital used for production purposes before the business runs it until it is sustainable. In this case, the initial capital consists of a combination of working capital, investment capital, and operational capital. For KH pals who don’t know, working capital is the overall cost used to purchase raw or raw materials for production purposes. Meanwhile, investment capital is the entire cost required to purchase the main means of production. Usually, investment capital consists of the largest amount of other capital. However, this large amount of investment capital is usually only spent once and can last for a long time. For example, to buy production machinery. Meanwhile, operational capital is the cost needed for the production process. Usually, operational capital is only issued for one period. For example, once a month and will be issued repeatedly according to the capacity or high amount of production. Now, to find out the initial capital, KH Buddy can add up all the components described earlier, namely working capital plus investment capital and operational capital.
- Profit or Loss
Another component included in the final capital calculation is profit or loss. Profit or also called profit is the profit obtained from business operations. To calculate business profit, KH pals can find the difference between income and expenses. If the difference is above zero rupiah, that is the amount of business profit that KH pals managed to get. Conversely, a loss is the amount of expenditure that is greater than the nominal income. When the result of the difference between income and costs is below zero rupiah, the result of the difference is considered a loss.
- Prive
Prive is included in the other final capital components that KH pals need to include in the calculation process. Please note, prive is the withdrawal of money that KH Friend does as a business owner. Both for business purposes and personal needs. When the business owner withdraws money from his company for personal needs or use, the company will take the funds from the capital section. This makes sense because basically, the business owner has shares in the business or company. The owner is able to get cash in exchange for owning part of the capital in the business or company. Later, this prive withdrawal will be recorded as part of the remaining capital or finances owned.
How to Calculate Final Capital
As already explained, the final capital in a business is no less important than calculating the initial capital. Both are the main components in creating a capital report, which is very much needed to compile business financial statements. For the record, the final capital calculation is usually done at the end of each production period. This is done to start a new production process. Now in calculating this final capital, it can be done by using the balance of profit or balance of loss. This depends on the performance recorded by a business, whether at that time it made a profit or suffered a loss. The following is a complete explanation of the calculation of the final capital based on the balance of profit and balance of loss.
Profit Balance
If your business succeeds in making a profit or profit, the way to calculate the final capital that can be done is to use the formula below: Final Capital = Initial Capital + (Profit – Prive) The results of calculations with retained earnings will usually be greater or increase than the initial capital.
Loss Balance
Meanwhile, if your business experiences a loss, the following formula for calculating the final capital can be used: Final Capital = Initial Capital + (Loss + Prive) Conversely, the calculation result with a loss balance will usually be less than the initial amount of capital used by the business. For a better understanding of how to calculate the final capital, KH buddy can observe the following example: Let’s assume that Mr. Rudi owns Rudi Travels Limited company. The company has IDR 10 million as its initial capital balance at the beginning of the reporting accounting period year, which is January 1, 2021. At this time, Mr. Rudi made an investment of Rp10 million into his company. Also, during the period, the company earned a net income of Rp30 million. Although the company has never made a loss since the beginning, Mr. Rudi urgently needs some money for personal needs and therefore has to withdraw Rp10 million from the capital account. So, the way to calculate his final capital is as follows:
| Description | Total |
| Balance of initial capital as of Jan 1, 2021 | IDR150,000,000 |
| Company net income | Rp30,000,000 |
| Prive | IDR10,000,000 |
Final Capital = Initial Capital + (Profit – Prive) Final Capital = Rp150 million + (Rp30 million – Rp10 million) Final Capital = Rp170 million. In this example, the company Rudi Travels Limited can be said to have good prospects and performance because it has managed to accumulate profits, so the calculation of its final capital also uses retained earnings.
Benefits of Calculating Ending Capital
Of course, calculating the final capital is not done without reason. This is because the final capital calculation has a number of benefits for businesses or companies. Here are some of the benefits of calculating the final capital for your business:
Monitoring Business Operations
One of the benefits of calculating the final capital of a business is that it can help KH Friends in monitoring business operations. By knowing the results of the calculation of the final capital of the business, KH Buddy can know whether the business has run its operations as well as possible or not. When operations are carried out efficiently, the business will usually generate profits. Conversely, if business operations are not good enough, it may cause losses. If this happens, you need to do a business analysis to make improvements so that future results are more optimal.
Predicting Business Continuity
Another benefit of calculating the ending capital is to predict the continuation of the business. For example, when you don’t have enough capital for the next business period, your business may need to seek a loan. Thus, the business can still run its operations and can generate profits. This capital assistance will also help the business to continue to survive in the industry.
Creating Accurate Financial Reports
Calculating the final capital can also help KH Buddy in making bookkeeping or financial reports more accurately. Yes, every business or company certainly needs a financial report for business evaluation purposes, right? In the report, there are many aspects recorded including the calculation of the final capital. The more complete and accurate the report, the easier it will be for businesses to analyze and evaluate.
KH Contact
That is the explanation of the final capital and how to calculate it that KH pals need to understand as business people. By understanding and applying it to your business, you can make a good judgment regarding the continuation of your business. Well, to help calculate the final capital of the business to be more effective, KH pals can also use the services of Kontrak Hukum. We provide Digital Business Assistant (DiBA) service which since 2018 has been trusted by thousands of companies as a partner to fulfill business needs including accounting and finance. A DiBA subscription at Kontrak Hukum is like having a complete team with more affordable prices and more efficient work. With DiBA, Sobat KH can also not only enjoy services in the field of accounting, but also fulfill business needs in the field of legality and tax. For more information, please visit the page https://kontrakhukum.com/digital-assistant/ Or if you still have further questions about other businesses, KH Friend also consult with us through the following link Ask KH.
