Proposed Concepts Statement

Notes to Financial Statements

Reserves and surplus is reflected under shareholders funds in the balance sheet. In this respect principles adopted in preparing companies accounts, the basis on which transactions have been arranged and accounted for, and disclosure of all information are to be taken into consideration. It helps to clarify they would cloud the data reported in the financial statements. Describe the items that are left out of the balance sheet and income statement. For purposes of this paragraph, settlement in cash includes settlement in cash of the net change in value of the derivative commodity instrument (e.g., net cash settlement based on changes in the price of the underlying commodity). There are no new reporting requirements and the update expands the current prescription. A common terminology and classification should be used consistently throughout the budget, the accounts, and the financial reports of each fund.

Notes to Financial Statements

Holding CompanyA holding company is a company that owns the majority voting shares of another company . This company also generally controls the management of that company, as well as directs the subsidiary’s directions and policies.

She is an expert in personal finance and taxes, and earned her Master of Science in Accounting at University of Central Florida. Sophisticated investors and lenders will read closely the notes to the financial statements. If the corporation’s shares of stock are publicly traded, they will also read the additional information presented in the corporation’s Annual Report to the Securities and Exchange Commission, Form 10-K. All the significant accounting policies adopted in the financial statements must be disclosed in the section.

The original budget may be adjusted by reserves, transfers, allocations, supplemental appropriations, and other legally authorized legislative and executive changes before the beginning of the fiscal year. The original budget should also include actual appropriation amounts automatically carried over from prior years by law. As discussed in Note 2, Hexcel entered into a $50,000 capital lease for property, plant and equipment used in the Acquired Clark-Schwebel Business. The lease expires in September 2006 and includes various purchase options. The aggregate fair value of the Convertible Subordinated Notes, due 2003, was approximately $96,100 and $196,000 as of December 31, 1998 and 1997, respectively.

Notes About Reporting Debt

These are reported on the balance sheet at fair value, and any unrealized gains or losses on these securities are reported in other comprehensive income as a part of shareholders’ equity rather than in the income statement. Capital outlays financed from general obligation bond proceeds should be accounted for through a capital projects fund. Capital project funds exclude those types of capital-related outflows financed by proprietary funds or for assets that will be held in trust for individuals, private organizations, or other governments (private-purpose trust funds). This basis results in no reported assets other than cash and investments and no reported liabilities.

Operating budget – Presents the estimated expenditures and available resources necessary to provide the services for which the government was created. An operating budget will contain flexible budgets and fixed budgets; the fixed budgets will include annual/biennial appropriations for services and the annual/biennial portion of continuing appropriations for debt service and for service projects. Continuing appropriation – A fixed budget which authorizes expenditures for a fiscal period that differs from the government’s fiscal year, such as capital projects, debt issues, grant awards, and other service projects.

Business activities of the company and detailed information regarding the expansion of the business. Size of company, legal entity, its structure, registration, address, and any other place where a business is run or registered. Other matters such as contingent liabilities, detailed disclosure of financial and non- financial matters. Summarized financial information of subsidiaries not consolidated and 50 percent or less owned persons. The disclosures in paragraphs and of this section shall be provided when material. To view Notes via the column link, open either the Balance Sheet, Income Statement, or Statement of Cash Flow from the Company page and click on the “Footnotes” link in the column containing the period information of interest.

Financial Statement Notes

Many articles and books on financial statement analysis take a one-size-fits-all approach. Less-experienced investors might get lost when they encounter a presentation of accounts that falls outside the mainstream of a so-called “typical” company. Please remember that the diverse nature of business activities results in a diverse set of financial statement presentations. This is particularly true of the balance sheet; the income statement and cash flow statement are less susceptible to this phenomenon. Inventory losses due to unforeseen circumstances typically are reported in the notes of financial statements.

For instance, if a food business loses an entire batch of inventory to refrigeration problems, an accountant makes a note on the income statement or balance sheet. Additionally, businesses make a note of any changes to inventory calculations during the fiscal year. For example, a business might change its inventory calculation method from the average-weighted method to the first in, first out, or FIFO, method.

These details include the obligation of the business to pay for post-retirement health and medical costs of retired employees. The company also has to address any subsequent events that happen after the close of the accounting period. How the company handles this type of event hinges on whether the event is a Type I or Type II event. The user needs to know which methods the company uses when comparing financial statement figures with another company’s figures.

Effective Date Of Amendments On Disclosure Of Accounting Policies

An income statement—or profit and loss report (P&L report), or statement of comprehensive income, or statement of revenue & expense—reports on a company’s income, expenses, and profits over a stated period. A profit and loss statement provides information on the operation of the enterprise. These include sales and the various expenses incurred during the stated period. The financial statement numbers don’t provide all of the disclosure required by regulatory authorities. Analysts and investors alike universally agree that a thorough understanding of the notes to financial statements is essential to properly evaluate a company’s financial condition and performance. As noted by auditors on financial statements “the accompanying notes are an integral part of these financial statements.” Please include a thorough review of the noted comments in your investment analysis. Generally accepted accounting principles or International Financial Reporting Standards are used to prepare financial statements.

Items in this category are classified as current assets or current liabilities if they are expected to be realised within 12 months of the balance sheet date. Accounting PolicyAccounting policies refer to the framework or procedure followed by the management for bookkeeping and preparation of the financial statements. It involves accounting methods and practices determined at the corporate level. Amounts of related party transactions should be stated on the face of the balance sheet, statement of comprehensive income, or statement of cash flows. In the notes to financial statements, the company also has to report any subsequent events.

Intangible Assets

Note the carrying amount of any financial instruments that are used as collateral for borrowings, and concentrations of credit risk. Disclosing this contingent liability is a requirement if the company will owe a substantial amount of additional tax penalties and interest if the unsolved examination ends up in the government’s favor. Financial accountants use the terms footnote, note, and explanatory note pretty much interchangeably as all three terms represent the same explanatory information. One thing that the notes may tell users is information about the company, such as what products the company makes or the year the company was founded.

Notes to Financial Statements

Yet another thing that the notes may tell users is whether a company uses lower of cost or market to value inventory. This means that inventory will be valued at the lowest replacement amount, whether it be the wholesale cost or the price that the inventory is sold at market.


It is necessary to use an enterprise fund if the government’s policy is to establish activity fees or charges designed to recover the cost, including capital costs . Encumbrances – Commitments related to unperformed contracts for goods or services should be utilized to the extent necessary to assure effective budgetary control and to facilitate cash planning. Notes to Financial Statements Encumbrances outstanding at year end represent the estimated amount of expenditures ultimately to result if unperformed contracts in process are completed; they do not constitute expenditures or liabilities. At the date of issue, the aggregate fair value of the Ciba Senior Subordinated Notes was $3,026 less than the aggregate principal amount.

Reconcile any changes in goodwill during the period, and any impairment losses. Employee benefit plans provide benefits to both employees and former employees.

The first section in the financial statement notes explains the basis of preparing and presenting the key financial statements. The notes may also provide information on underlying issues relating to the overall financial health of the company. The auditor bases his audit opinion on the financial statement numbers, as well as the notes to the financial statements.

In addition, the company expensed $8,000 of acquired in-process research and technology purchased from Fiberite which is also included in the 1997 business acquisition and consolidation expenses. Certain prior year amounts in the accompanying consolidated financial statements and related notes have been reclassified to conform to the 1998 presentation. Outstanding liens on any asset typically are reported in financial notes to notify investors and other outside parties of financial liabilities.

  • It would be allowable in this case to leave the activity all within general fund.
  • The employee benefits section of the notes mentions the benefits that the company provides to its employees, including health insurance, health savings accounts, retirement plans, etc.
  • A subsequent event is an event that occurs after the accounting period has ended but before the financial statements have been issued for the same accounting period.
  • The debentures are convertible prior to maturity into common shares of the company at $30.72 per share.
  • The section contains a description of the year gone by and some of the key factors that influenced the business of the company in that year, as well as a fair and unbiased overview of the company’s past, present, and future.

Subsequent events that are new events, however, should not be reflected in the financial statements, but if material, must be disclosed in the notes to the financial statements. Including any defaults in the notes on financial statements is critical to providing an accurate picture of company finances. On paper, a business might appear as if it is financially stable and in possession of valuable assets when defaults are not reported. However, defaults typically lower a business’s credit rating, making loans harder to obtain in the future. Defaults also lead to significant legal expenses and the seizure of assets if debts are not paid. Footnotes to the financial statements serve as a way for a company to provide additional explanations for various portions of their financial statements. Footnotes to the financial statements thus report the details and additional information that is left out of the main financial statements such as the balance sheet, income statement, and cash flow statement.

Inventory Changes

Balance SheetA balance sheet is one of the financial statements of a company that presents the shareholders’ equity, liabilities, and assets of the company at a specific point in time. It is based on the accounting equation that states that the sum of the total liabilities and the owner’s capital equals the total assets of the company. Statement Of Changes In EquityStatement of changes in equity is the adjustment of opening and closing balances of equity during a particular reporting period. It explains the connection between a company’s income statement and balance sheet. It also includes all those transactions not captured in these two financial statements. Subsidiaries are translated into US dollars at year-end exchange rates, and revenues and expenses are translated at average exchange rates during the year. According to current accounting standards, operating cash flows may be disclosed using either the direct or the indirect method.

The company employs an interest rate cap agreement and foreign currency forward contracts in the management of its interest rate and currency exposures. The company designates its interest rate cap agreement against a specific debt instrument and recognizes interest differentials as adjustments to interest expense as the differentials occur. Realized and unrealized gains and losses arising from foreign currency forward contracts are recognized in income as offsets to gains and losses resulting from the underlying hedged transaction. The company periodically reviews the recoverability of all long-term assets, including the related amortization period, whenever events or changes in circumstances indicate that the carrying amount of an asset might not be recoverable. The company determines whether there has been an impairment by comparing the anticipated undiscounted future net cash flows to the related asset’s carrying value. If an asset is considered impaired, the asset is written down to fair value which is either determined based on discounted cash flows or appraised values, depending on the nature of the asset.

The acquisition of the satellite business and certain technologies from Fiberite on September 30, 1997 was accounted for using the purchase method. Under this method, substantially all of the $37,000 purchase price, less the $8,000 write-off of the acquired in-process research and technology, was allocated to intangible assets. Transaction costs in relation to the downsized transaction were not material. Supplements to illustrative disclosures, which illustrate additional disclosures that companies may need to provide on accounting issues. Prospective investors make use of financial statements to assess the viability of investing in a business.

The lack of any appreciable standardization of financial reporting terminology complicates the understanding of many financial statement account entries. There’s little hope that things will change on this issue in the foreseeable future, but a good financial dictionary can help considerably. Importantly, a company will state the accounting methodology used, if it has changed in any meaningful way from past practice, and whether any items should be interpreted in any way other than what is conventional. For example, footnotes will explain how a company calculated its earnings per share , how it counted diluted shares, and how it counted shares outstanding. Alicia Tuovila is a certified public accountant with 7+ years of experience in financial accounting, with expertise in budget preparation, month and year-end closing, financial statement preparation and review, and financial analysis.


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