When you work with your bookkeeper to submit annual financial statements to various entities with a stake in the financial well-being of your company, they often include notes. These notes provide additional information about the items in the report.
Here are just a few examples of the type of notes you may find in annual financial statements:
Information about the Company
Your annual financial statement will include a lengthy explanation about your company and its activities for the year. But notes to other financial statements will include a brief paragraph about your company, and also list the company’s legal status.
Significant Accounting Policies
This section is designed to give readers of annual financial statements more context about the information provided in the report. The notes in this section describe the principles and procedures used in accounting processes, such as GAAP. It will also list any subsidiaries or affiliates that are part of the annual financial statements, and will include information about currency translations for multinational companies.
Additional Disclosures
This section reveals information that is not displayed in most annual financial statements. This information typically falls under one of four categories.
- Accounting changes: Changes in accounting methods and how these changes may affect past reporting, if at all
- Leases: Existing leases, renewal options, and minimum payments would be disclosed here.
- Transactions with related entities: Related entities are described as properties that may be fully owned by the corporation, share common ownership, or the owner of the corporation owns a small stake in the other company. These can also include joint ventures. These transactions, and the relationships with the entities, should be described in the notes.
Need help understanding all the sections of annual financial statements—or a full-scale accounting department to prepare your statements for you? Contact AccountingDepartment.com to set your books straight and keep them that way.
