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Financial statement presentation.

When you look at most text books on principles of accounting, there is no reference to the actual correct format of the basic financial statement. Perhaps this is because there is no set policy defining format, and each preparer has his or her own style. However, there are certain common style characteristics and accepted formats which make financial statements more understandable and more comparable. Let's review these style characteristics that are generally common to most statements.

The financial statement should have a heading showing the full legal name of the company, the title of the statement and the date or the period covered:
Make-it Corporation Make-It Corporation
Balance Sheet Statements of Income
December 31, 1991 Years Ended
 December 31, 1991 and

On a comparative financial statement presentation, the year is shown in the column heading. On a single period statement, no heading is neccessary. When the period covered is a number of months, such as six (6) months and nine (9) months, this information is shown in the column heading. The column headings are centered over the column and underlined. It is recommended that the underline extend for the full width of the column.
 1991 1990
Sales $40,000 $35,000
Cost of Sales 15,000 12,000
Gross Profit 25,000 23,000
 9 months 6 months
Sales $40,000 $35,000
Cost of Sales 15,000 12,000
Gross Profit 25,000 23,000

A dollar sign is used before the first number in a column, before a number which has a double underline and before the first number following a number which is doubly underlined. Dollar signs are frequently used for the first item in each new category on a financial statement. This technique can be confusing because there are so many more locations where the dollar sign can be placed. It is difficult for the preparer to determine the location and it can be confusing for the user to read.

Single underlining is used in several places on a financial statement. This underlining makes the statement more readable and easier to follow. Customary procedure is to underline the last amount preceding a subtotal. Again the underline should be the full width of the column. The subtotal usually follows the underline with no blank lines. However, if the subtotal has a caption, a better appearance is created if a blank line precedes the subtotal.
 1991 1990
 Cash in Bank
 First Western $ 123,490 $ 115,987
 Upstate 57,458 49,943
 180,948 165,930
 Inventory 754,920 697,480
 Total current
 assets 935,868 863,410

When the amount for a given item on the financial statement is zero, there are three choices for presentation. The amount can be left blak, a zero can be used, or a dash may be used to indicate a zero amount. Leaving the amount blank can be confusing -- the reader may not be sure whether the correct amount was inadvertently omitted or was meant to be zero. Using zero itself sometimes tends to clutter the financial statement. The use of dash gives the neatest and clearest result.

Use of brackets can also be somewhat confusing. Generally, when presenting a number which is always a subtraction, brackets are not used. For instance, cost of sales always reduces sales and taxes are subtracted from pretax income. See the above example. On the balance sheet, items such as accumulated depreciation and the current portion of long term debt are often shown in brackets. This is the case when they are presented as part of a group of numbers which is the subtotaled.
 Buildings 1,900,000
 Machinery 465,000
 Office Equipment 210,000
 Accum. Depreciation (825,000)

On a comparative financial statement, when a particular item may show a positive amount for one year and a negative amount for the other, the description should reflect the situation. For example, the description would be Income (Loss) before Extraordinary Items, or Increase (Decrease) in Current Assets.

Financial Statements should always reference any attached notes. Specific references may be made within the body of the statement, e.g., "Property, Plant and Equipment (Note 3)" -- or a general reference to the notes usually shown at the bottom of the page can be used. This method is easier to apply and has less likelihood for error. Individual note references may change from year to year and if a pro forma is used for the statements, a change in a reference could easily be omitted. Any of the following references may be used as a general reference at the bottom of the page:

1. See accompanying notes.

2. See notes to financial statements.

3. The accompanying notes are an integral part of the financial statements.

Under SSARS-1, a compiled or reviewed financial statement must have a reference to the accountant's report. This reference can be combined with the above reference to the notes, e.g., "See accompanying notes and Accountant's Report."

Audited financial statements are not required to have a reference to the audit report on each page.

The most important things to remember are: financial statements should be easy to follow and understand, should contain all necessary information and should always be consistent. If the same format is used on a regular basis, the margin for error in the office will be reduced and the margin for understanding on the part of the user will be greatly increased.
COPYRIGHT 1991 National Society of Public Accountants
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1991 Gale, Cengage Learning. All rights reserved.

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Title Annotation:Accounting Scene
Author:Schwartz, Marlyn A.
Publication:The National Public Accountant
Article Type:Column
Date:Nov 1, 1991
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