Notes to the Financial Statements

Various rules of the Financial Accounting Standards Board and Generally Accepted Accounting Principles require that many items be disclosed in the financial statements or in notes that accompany them. Instead of cluttering up financial statements with a lot of detail, accountants usually put much of the required technicalities in the notes. For instance, when Alice made up the balance sheet (Fig. 12-4) for Harry’s Hardware, she could have omitted the detail about equipment. She could have just put down one line, “Plant, property, and equipment, net of depreciation ... $70,000 ... $80,000.” The breakdown of equipment into “Furniture and fixtures,” “Office equipment,” “Vehicles,” and “Accumulated depreciation” could all have been relegated to the notes to the financial statement.

Even though Alice did not condense that area, she was required to expand on some other items in the notes to the financial statements. These items include a description of long-term debt and in what years the debt would be due. There is a similar requirement that future rentals required by leases be disclosed. She did that in note 3. (See Fig. 12-8.)