Notes to Financial Reports

Notes to Financial Statements

Notes found at the bottom of Financial Statements are essential and important to the reader in order to help them get a better understanding of a company’s financial situation and the results of its operations. These notes help provide the reader additional information including help clarifying, explaining and expanding on the figures found on the Financial Statements. The first notes that should be found at the bottom of Financial Statements, are the Accounting Policies. This is a description of the accounting principles and methods such as depreciation, inventory and the method used to account for the risk of uncollectible accounts receivable.

An important statement found in the notes, are that the Financial Statements have been prepared in accordance to the Generally Accepted Accounting Principles. There are some common notes found and I will try to briefly summarize them below. Inventory notes would explain what method of inventory the corporation is using, LIFO, FIFO, etc. and the method of valuation such as lower of cost or market. The Property, Plant and equipment notes would describe what method is used for fixed Assets and the method used for depreciation; for example straight line or double declining balance. This part of the notes would also give details of any major impairment. Creditors’ claims help give a better picture on how Corporation are financing there operations and they must also make note of the total amounts of all long-term borrowings. The equity holders’ claims of the notes would mention the amount of shares issued, authorized and outstanding and their par value. Other things that could be included in this note are unrealized loss on investment securities, redeemable and convertible preferred stock and the amount available for dividend distribution. Tax notes may indicate if the company recognizes or not deferred taxes on its books. If they due recognized deferred taxes they would described how the taxes...