The Financial Statement
A Basic Guide
By Deskdemon.com
Definition
The notes are supporting schedules to the Financial Statements, disclosing full details on specific items. This extra information is pertinent to the proper understanding and interpretation of the statements.
Financial Statement: What it tells you
The following matters must be stated by way of a note:
- Provision or no provision for depreciation of fixed assets and the method used.
- If no provision for taxation has been made, details must be stated
- If any items mentioned in the Income Statement are affected by:
- A change in the basis of accounting
- A change in the methods for the determination of the value of any assets
- Extra-ordinary transactions undertaken by the company
- If Dividends are declared or proposed
- Full details of shares of a company held by subsidiaries or their nominees
- Full details of share capital or shares authorised to be issued
- Particulars of securities held over assets to secure the liabilities of any debt
- Details of any other contingent liabilities e.g. letters of suretyship, whether limited or unlimited
- Details of all secured and unsecured liabilities
- Details of contracts for capital expenditure not provided for
- Revaluation of assets
- Subsidiary and associated companies
- Stock
- Turnover
- Any name change
All amounts disclosed for the current year must be accompanied by the corresponding amounts for the immediate preceding financial year, unless it is the first accounting period.
Financial Statement: Who uses them & why
Notes are used by Shareholders, Banks/Creditors and the Inland Revenue.
The notes may include details concerning the composition of specific items, disclosure of significant accounting policies and of changes made therein.
Certain information can be disclosed by way of note if it would be more effective or convenient. The idea is to keep the structure of the Financial Statements simple. The inclusion of too much detail results in very elaborate Financial Statements in which the significance might not stand out prominently.
