Q29Q. - Intermediate Accounting (Kieso)

Question

What are some of the techniques of disclosure for the balance sheet?

Step-by-Step Solution

Answer

Various techniques that are used for disclosure of balance sheet are as follow:

1. Parenthetical explanation.
2. Notes to the financial statement.
3. Cross-references and contra items.
4. Supporting schedules.

Definition of Full Disclosure

A principle in accounting that states that a business entity must provide complete information regarding each transaction having a financial nature in the financial reports is known as full disclosure.

Techniques of disclosure for the balance sheet

1. Parenthetical Explanation: It is a type of explanation given along with the line item in the balance sheet. For example, Common stock (issued at par $5, 10,000 shares).
2. Notes to the financial statement: If the business entity cannot provide detailed information through parenthetical explanation, then the business entity discloses such information in notes to the financial statement reflected at the end of the balance sheet.
3. Cross-reference and contra-items: When an asset and a liability are directly related, the business entity uses cross-reference. Examples would be sinking funds for bonds payable (on the asset side) and bonds payable (on the liabilities side). Contra-items are directly deducted from the particular line item, such as accumulated depreciation.
4. Supporting schedule: If the business entity cannot reflect detailed information of any line item through any technique, it uses a supporting program that reflects all the calculations done to arrive at a specific line item.