Notes To Financial Statements
Notes to the financial statements are an integral part of the statements and are required by Generally Accepted Accounting Principles. Notes to financial statements,sometimes referred to as footnotes, are used to provide additional information about a business's financial condition and methods used at arriving at the amounts presented in the financial statements.
These notes contain important information about such things as the accounting methods used for recording and reporting transactions, any pending lawsuits or regulations that may affect the business, and other information that should be disclosed in order to properly analyze and evaluate the financial condition of the business.
The Good News
While these financial statements were prepared from just a very few transactions, my goal was to introduce you to what formal financial statements are needed and what’s involved in preparing them even though the bookkeeper may or may not be required or responsible for preparing them. Many businesses have their accountant or CPA (Certified Public Accountant) prepare or review their financial statements.
Another plus, nowadays, good accounting or bookkeeping software will automatically generate these statements. While this is great, we still need to be aware of that ole saying “GIGO – Garbage In Garbage Out”.
Are we there yet ?
Analyzing Financial Performance
While preparing financial statements is critical to the success of a business, it’s only half the battle. In order for a business to fully benefit the financial information needs to be analyzed and compared. A few tools used are comparing past performance with current performance and comparing how the business stacks up against its competitors or similar businesses.
While the Financial Statements presented in this lesson are simplified versions of the “real” world and were compiled from only a few financial transactions, the concepts and methods used are the same as you would use for a business with a multitude of transactions.
So you know – things do change !
The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) are continually working on projects and changes to the financial statement presentations as well as the accounting rules may result.
Now's not the time to give up. You've made it this far and have only one lesson left to complete the course.
Yes, if you need one, you can take a break before moving on to our Final Review after the Videos and Testing.