Notes To Financial Statements

A depreciation schedule is a table, schedule, or chart that helps businesses track the depreciation expenses of assets over the years. It is prepared to monitor expenses that arise due to depreciation, which occurs because assets with high monetary value are used over extended periods. Depreciation expenses represent the diminishing value of an asset due to prolonged use.

Depreciation is considered a non-cash expense for accounting purposes. The schedule acts as a financial tool for reporting, recording, and tracking the asset's value, and helps businesses develop an asset-use strategy. Any asset that will not be consumed within one year is depreciable, provided the business owns the asset and uses it to generate profit.

Land is an exception, according to the Financial Accounting Standards Board (FASB). It is important to note that businesses cannot claim the full value of an asset in a single year. According to generally accepted accounting principles (GAAP), methods like the straight-line method, double-declining balance, sum-of-the-years-digits, and units-of-production methods are commonly used. It's also worth noting that the elements included in a depreciation schedule can vary from company to company, depending on the information they choose to disclose and the method they use to calculate depreciation.

Notes to financial statements are notes provided in the financial statements, also called footnotes. They are a list of statements explaining the policies and methodologies implemented. Assumptions and specific adoption reasons may also be presented through them. Companies generally prepare financial statements in accordance with generally accepted accounting principles and the rules thereon. However, some situations need additional clarification besides being unique to the business; the notes help explain them. The notes also help to emphasize the message the company wants to convey to the interested parties. They may be shareholders, tax authorities, investors, or even the general public. 

Financial statements are documents publicly traded businesses use to present financial information to the Securities and Exchange Commission (SEC), a regulatory agency. A company's assets, debt, revenue, expenses, and details about financing from shareholders are all detailed in its financial statements. Each financial statement item is a line item expressing a numerical value. 

The decisions made by the accounting team can be revealed through the notes. The notes also explain the key factors that affect line items. Interested parties, such as the shareholders, can get detailed information about accounting choices and unrelated factors that affect an organization's financial situation by reading the financial statement notes. 

Example #1

Let's consider the example of ABC Ltd., a manufacturing company. The finance team recognized an ambiguity in the valuation of inventory. The company decided to reveal it in its financial notes. They disclosed that the inventories are stated at their lower cost and net realizable value. It also stated that the cost was determined on a first-in, first-out basis. This gives an insight into the business's operations and is, therefore, important information. 

Example #2

As a real-life example, Sympheron Securities LLC, an independent investment bank (2015), prepared notes. The footnotes for the company contained the following: 

• Organization and nature of the business
• Accounting Policies
• Prepaid expenses
• Related-party transactions
• Accrued expenses
• Subordinated notes
• Contingencies and commitments
• Partner's capital
• Subsequent events 

No particular notes to financial statements template is followed. Below are a few types of notes a company prepares. 

• Basis of presentation: They reveal the financial accounting regulations followed by the company. 
• Accounting policies: The disclosure concerns rules, regulations, and other internal processes that the reporting team follows. 
• Depreciation of assets: The decline in the value of assets over time is noted under this heading.
• Valuation of inventory: The value of total unsold inventory is recorded here. 
• Subsequent events: Subsequent events are significant events that occur after the balance sheet is prepared but before the statements are published. 
• Intangible assets: The valuation method of these assets is mentioned under this type.
• Consolidation of statements: In the case of a parent and subsidiary company, the financial statements are merged under one name. 
• Employee benefits: The pension schemes, post-employment, or retirement benefit programs are covered in the footnotes. 
• Contingencies: These contain measures that an organization has taken against liabilities that may arise in the future. 
• Debt reporting: gives insight into the company's debts and in-depth accounts. It may also reveal whether the company's assets have been used as collateral. 
• Fair value: Gives details of the price sellers receive after the sale of an asset. 

The purpose of notes to financial statements is to provide detailed accounting notes that describe how an organization's accountants made choices. They are accompanied by justifications for why specific items were included in particular sections of the financial statements. The explanation allows interested parties to understand why the stance was taken. Investors could use these footnotes to gain insights into the business's financial strength. 

The notes will also reveal management decisions. In addition, they include information on how inventory was evaluated for businesses that maintain sizable product inventories, which gives insight into the business's operations. The disclosure notes list information like pending legal actions, pending patent applications, and other things that might immediately affect the company's financial situation.