Understanding the Importance of Footnotes in Financial Statements

School: Southern New Hampshire University - Course: ACC 317 - Subject: Accounting

2-1 Short Paper: Footnotes Melissa Sue Loller Southern New Hampshire University ACC-317 Intermediate Accounting Professor Michael Downes January 15, 2023

2 "Footnotes to the financial statements refer to additional information that helps explain how a company arrived at its financial statement figures. They may also help to explain any irregularities or perceived discrepancies in year-to-year account methodologies." (Alicia,Tuovila, 2020)Footnotes are often used to explain how a particular value was evaluated on a particular line item. This may include issues such as amortization or any incident where an estimate of future financial results had to be determined. Additional information provides the necessary disclosures, the accounting methodologies used, methodological changes from previous reporting periods and future transactions that may affect future profitability. As Jeff Schmidt explain in his article in CFI, the two main areas of focus that will be featured in your footnotes have to do with; 1.Your company's accounting methods 2.Explaining any major operational and financial results that have come up in the accounting period being reported on. Other information that could be found in footnotes A.Account changes showing any modifications to company's accounting policies or principles that have happened over the reporting period, why theses changes took place and how it may have had an effect on the companies accounts B.Probabilities and uncertainties that expose a company C.Debt along withdetailed notes on any loans payable over the next few years, interest rates, and par value