Blog

Notes to the Financial Statements- Reporting Requirements for Annual Financial Reports

A contingent liability is a liability for an event that has not occurred but is likely to occur in the immediate future. Common contingent liabilities that receive recognition on financial statements include pending lawsuits and financial planning for product warranty claims. The financial position of an enterprise is primarily provided in a balance sheet. The main purpose of financial statements is to provide financial information to the users to assist them in their economic decisions. The financial statements basically present the financial information in such form that it is not only understandable but also useable. That is why financial statements present the financial effects of different business events that also includes business transactions.

• Since the financial statements provide only a summary of what the company is required to report, it is important for financial analysts to read the disclosures and other supplementary information to know the real story.
• Importantly, a company will state the accounting methodology used, if it has changed in any meaningful way from past practice, and whether any items should be interpreted in any way other than what is conventional.
• Financial statements are documents companies use to communicate financial data to shareholders and the Securities and Exchange Commission (SEC).
• Notes to the financial statement include important factors that were used in preparing the statement.
• They provide investors, shareholders, and employees with greater insight into a company’s mission and goals, compared to individual financial statements.
• It shows its assets, liabilities, and owners’ equity (essentially, what it owes, owns, and the amount invested by shareholders).

The statement of cash flows places all cash exchanges into one of three categories—operating, investing, or financing—to calculate the net change in cash during the accounting period. Operating cash flows arise from day‐to‐day business operations such as inventory purchases, sales revenue, and payroll expenses. Investing cash flows relate to cash exchanges involving long‐term assets, such as the purchase or sale of land, buildings, equipment, or long‐term investments in another company’s stock or debt.

Understanding Financial Statements

To view Notes via the column link, open either the Balance Sheet, Income Statement, or Statement of
Cash Flow from the Company page and click on the “Footnotes” link in the column containing the period information of interest. We expect to offer our courses in additional languages in the future but, at this time, HBS Online can only be provided in English. Are you interested in gaining a toolkit for making smarter financial decisions and communicating decisions to key stakeholders? Explore our online finance and accounting courses, and download our free course flowchart to determine which best aligns with your goals.

Many regulators use such messages to collect financial and economic information. Often, the footnotes will be used to explain how a particular value was assessed on a specific line item. This can include issues such as depreciation or any incident where an estimate of future financial outcomes had to be determined. Below is a portion of ExxonMobil Corporation’s cash flow statement for fiscal year 2021, reported as of Dec. 31, 2021.

Nonprofit Financial Statements

Financial statements are the ticket to the external evaluation of a company’s financial performance. The balance sheet reports a company’s financial health through its liquidity and solvency, while the income statement reports a company’s profitability. A statement of cash flow ties these two together by tracking sources and uses of cash. Together, financial statements communicate how a company is doing over time and against its competitors. The financial statements are used by investors, market analysts, and creditors to evaluate a company’s financial health and earnings potential.

There is a long list of the different types of financial statement footnotes. Any information that is needed to clarify or add additional detail to a financial statement will be found in the footnotes. The rate of interest on investments law firm bookkeeping and adjustment of the principal amount of investment each is applicable for income statements and balance sheets. Another way to view the full text of the footnotes section is via the Left Sidebar link on the Company page.

Notes to Financial Statements Examples

Our platform features short, highly produced videos of HBS faculty and guest business experts, interactive graphs and exercises, cold calls to keep you engaged, and opportunities to contribute to a vibrant online community. Harvard Business School Online’s Business Insights Blog provides the career insights you need to achieve your goals and gain confidence in your business skills. Agencies must sequence notes by number/topic as indicated in the left navigation. Harold Averkamp (CPA, MBA) has worked as a university accounting instructor, accountant, and consultant for more than 25 years.