Explanations to the accounting (financial) statements. We draw up an explanatory note for the balance sheet (sample) Explanations for the annual financial statements
Until 2013, the explanatory note was part of the financial statements. But after certain legislative changes, it ceased to be part of the reporting, although the law states that taxpayers can provide additional information that they consider useful.
According to the current legal regulation, financial statements also have annexes. As attachments, you can indicate a report on changes in capital, a report on the intended use of funds, explanations for and. What features do the explanations have and how should they be compiled?
Dear readers! The article talks about typical ways to resolve legal issues, but each case is individual. If you want to know how solve exactly your problem- contact a consultant:
APPLICATIONS AND CALLS ARE ACCEPTED 24/7 and 7 days a week.
It's fast and FOR FREE!
General provisions
As mentioned above, they are part of the annual financial statements. However, they may not be presented by non-profit organizations and public associations that are not engaged in entrepreneurial activities and do not have turnover in the sale of products or goods.
Explanations can be presented both in text form and in tables. At the same time, companies have the opportunity to independently determine the content. But the corresponding order of the Ministry of Finance of the Russian Federation (N 3 dated 07/02/2010) presents recommended forms.
During their registration, certain requirements must be met:
- everything must be numbered;
- The number must be indicated in the column on the corresponding lines.
You need to know that, according to the current legal regulation, they are not considered a separate reporting form, but are only an appendix to the financial statements. Essentially, this is a transcript of it. Explanations to the balance sheet and income statement consist of certain sections.
These include:
- financial investments;
- estimated liabilities;
- production costs;
- stocks;
- securing obligations, etc.
Each partition consists of one or more tables. Explanation lines are subject to coding. Compilation of explanations can be done using the word program.
The legislative framework
According to current legal requirements, the financial statements must reflect reliable data that makes it possible to prepare a statement about:
- financial position of the enterprise;
- financial results of its business activities;
- during the reporting period.
This area of legal relations is regulated in the Federal Law “On Accounting”.
When drawing up explanations, it is necessary to take into account the relevant provisions of PBU 4/99 (clauses 24-27). It is also necessary to be guided by the norms of other accounting provisions and subparagraph “b” of paragraph 4 of Order No. 66n.
For example, in the explanations it is necessary to disclose information that relates to the accounting policies of organizations. They mainly concern numerical indicators of financial statements.
In this case, it is necessary to take into account the fact that the financial statements do not include information that is related. The composition and content of such information are provided for in clause 39 of PBU 4/99. In particular, an enterprise may provide additional information if, in the opinion of its executive body, such data is useful for interested parties.
The accompanying information may disclose information such as:
- dynamics of the enterprise’s financial indicators;
- planned development of the company;
- proposed investments;
- risk management policy, etc.
The Law “On Auditing” states that audit procedures are also carried out in relation to explanations. And additional information, as a rule, is not subject to evaluation.
An example of formatting explanations for the balance sheet by section
The explanations consist of several sections.
In particular, there are the following sections:
| Section 1 | Dedicated to intangible assets and enterprise R&D expenses, including unfinished operations. |
| Section 2 | This part contains information about fixed assets, profitable investments in material assets, and other non-current assets. |
| Section 3 | Dedicated to the financial investments of the enterprise. |
| Section 4 | Contains information about the company's inventory. |
| Section 5 | It discloses information about the company's receivables and payables. |
| Section 6 | Dedicated to production costs. |
| Section 7 | It contains information about estimated liabilities. |
| Section 8 | Dedicated to securing obligations. |
| Section 9 | Dedicated to data regarding government assistance. |
These are the main sections that must be completed. To have a more clear idea of how to fill them out, you can see an example of how to prepare notes to the balance sheet.
Required data
There is certain information that must be filled out without fail. What data should be filled in?
| First section |
|
| Section 2 | It is necessary to provide information about fixed assets, profitable investments in tangible assets, as well as other non-current assets. In this case, data must be provided for both the current and previous reporting periods. |
| Section 3 | Data on the initial cost of long-term and short-term investments, as well as their changes, must be filled in. Information about investments that are pledged to third parties should also be reflected here. |
| Section 4 | Dedicated to enterprise costs. In this case, it is necessary to provide information about unpaid inventories, as well as about those objects that are the subject of pledge. |
| Section 5 | Is quite large and dedicated to accounts receivable and payable. It should disclose information about:
The section must contain information about doubtful debts. In this case, it is also necessary to indicate data not only at the end of the year: it is also necessary to reflect changes during the reporting period. |
| Section 6 | Dedicated to production costs. It contains information about cost of sales, business expenses, etc. Data must be provided for both the reporting period and the previous period of time. |
| Section 7 | It is necessary to reflect data on the amounts of estimated liabilities. In this case, it is necessary to indicate data both at the beginning and at the end of the reporting period. Information on the amount of recognized, settled and excess liabilities must also be provided. |
| Section 8 | Dedicated to securing obligations. Here you need to fill in information about both received and issued security for obligations. In this case, it is necessary to fill in this data for each type of security (pledge, surety, etc.). |
| Section 9 | Dedicated to government assistance. Here you need to disclose data on budget funds received. In this case, you need to indicate their intended purpose. Data must be filled in for both the current and previous reporting periods. |
This is the basic information that must be filled in. In addition to them, you can indicate additional information that is not part of the financial statements, but which may contain useful data.
Below is a description of several tables by section.
Section 1 consists of 5 tables, which are devoted to:
And section 2 consists of the following tables, which are devoted to:
- availability and movement of fixed assets;
- unfinished capital investments (lines 5240, 5250);
- change in the value of fixed assets (lines 5260, 5270);
- other use of fixed assets (lines 5280-5286).
Explanations to the balance sheet and profit and loss statement is a transcript of individual balance sheet items, explaining the presence and movement of certain types of funds and the sources of their formation, and also provides explanations to the profit and loss statement. This allows users to present in more detail the property status of the organization at the reporting date and obtain information about production costs in their classification by element. An example of the preparation of explanations for the balance sheet and profit and loss statement is presented by the Ministry of Finance of the Russian Federation in the form of 9 tables:
- 1. Intangible assets and expenses for research, development and technological work (R&D).
- 2. Fixed assets.
- 3. Financial investments.
- 4. Inventories.
- 5. Accounts receivable and payable.
- 6. Production costs.
- 7. Estimated liabilities.
- 8. Securing obligations.
- 9. Government assistance.
Explanations for the balance sheet and profit and loss statement can be presented in tabular and (or) text form. The content of the explanations, drawn up in tabular form, is determined by organizations independently, taking into account Appendix No. 3 to Order of the Ministry of Finance of the Russian Federation dated July 2, 2010 No. 66n “On the forms of financial statements of organizations.”
Filling out the table 1 "Intangible assets and expenses for research, development and technological expenses (R&D)."
This table deciphers the presence, movement and composition of intangible assets (account 04 “Intangible assets”). The table is filled out in accordance with PBU 14/2007 “Accounting for intangible assets”. The data is presented at historical cost based on synthetic and analytical accounting registers.
The column “At the beginning of the year (initial cost)” reflects the debit balance of account 04 “Intangible assets”.
The column "At the beginning of the year (accumulated depreciation and impairment losses") reflects the credit balance of account 05 "Amortization of intangible assets" and the amount of write-down of intangible assets.
The column “received (“Changes for the period”) shows the total receipt of assets from all sources, including those acquired for a fee, received free of charge, etc. (turnovers in the debit of account 04).
In the column “retired original cost” in parentheses show the total disposal of intangible assets in the current year at original cost, including those sold for a fee, transferred free of charge, etc. (turnover on account credit 04).
In the column “accumulated depreciation and impairment losses disposed of,” the amount of depreciation written off on retiring intangible assets should be reflected in parentheses, i.e. debit turnover on account 05 and the accumulated markdown result for these objects.
The column “accrued depreciation” shows the amount of depreciation charges for the reporting year, i.e. credit turnover on account 05.
In the column “impairment loss” the results of the write-down of intangible assets are reflected in parentheses.
The column “revaluation of original cost” reflects the results of the revaluation of intangible assets, reflected in the accounting records by the entry: Debit 04 Credit 83.
The column “revaluation of accumulated depreciation” shows the amount of additionally accrued depreciation as a result of the revaluation of the asset, which is reflected: Debit 83 Credit 05.
The columns “At the end of the period, historical cost and accumulated depreciation and impairment losses” are found by logical calculation.
General information about the presence and movement of all intangible assets for the reporting year is recorded on line 5100, and for the previous year - on line 5110. Below are explanations regarding the presence and movement of intangible assets by their types.
Table 2 "Fixed assets" allows reporting users to analyze the availability and movement of fixed assets involved in the production process of the organization, as well as those included in profitable investments in material assets.
On lines 5200 and 5210 "Fixed assets" the presence and movement of all fixed assets for the reporting and previous year is shown, including leased and inactive ones (located on conservation, in reserve) on the basis of PBU 6/01 “Accounting for fixed assets”. Data for account 01 “Fixed assets” is given at original or replacement cost by type:
- - building;
- - structures;
- - working and power machines and equipment;
- - measuring and control instruments and devices;
- - Computer Engineering;
- - vehicles;
- - tool;
- - production and household equipment and accessories;
- - working, productive and breeding livestock;
- - perennial plantings;
- - on-farm roads;
- - other relevant objects.
The division of fixed assets in accounting is carried out on the basis of PBU 6/01, which ensures comparability of the classification with international standards. In this case, the organization can also use the classification of fixed assets included in depreciation groups (Resolution of the Government of the Russian Federation of January 1, 2002 No. 1), which is close to OK 013-94.
The data for filling out the lines listed below is taken from analytical accounting for account 01. These can be inventory cards for recording fixed assets or other similar registers.
On lines 5220 and 5230 “Accounted for as part of profitable investments in material assets for the reporting year - total” provides data on the availability and movement of the following material assets, specially acquired by the organization to provide them under a lease (property lease) for a fee for temporary possession and use in order to generate income (account 03 “Income-generating investments in material assets”):
- o property for leasing;
- o property provided under a rental agreement. Profitable investments in material assets are reflected in
accounting and reporting in accordance with PBU 6/01 at original cost, based on the actual costs incurred for their acquisition, including the costs of delivery, installation and installation (Account 03 - Invoice 08).
The disposal of income-generating investments in material assets is accounted for on the credit of account 03 (D-t of account 02 - K-t of account 03 - for the amount of accumulated depreciation; D-t of account 91 - K-t of account 03 - for the amount of the residual value).
The procedure for filling out the columns of the table. 2 is similar to the procedure for filling out similar columns in Table. 1.
Table 3 "Financial investments" long-term (lines 5301 and 5311) and short-term (lines 5305 and
5315) financial investments accounted for on account 58 of the same name in the reporting and last year. Financial investments are reflected in accounting and reporting in accordance with PBU 19/02 “Accounting for Financial Investments”. The lines below detail the general information.
For example, according to the line “Contributions to the authorized capitals of other organizations” reflect the total value of assets that the organization has invested in shares and shares, authorized (share) capitals of other Russian and foreign organizations. It is recommended to separate out deposits in subsidiaries and dependent companies from the total amount of deposits.
By line "State and municipal securities" The value of state and municipal securities reflected on the balance sheet of the organization is given depending on the period of their circulation. These investments are most often quoted on an organized securities market, so they are recorded at their current market value.
By line "Securities of other organizations - total" indicate data on the cost of purchased securities issued by other organizations (bonds, bills, etc.). These can be both quoted and unquoted securities; therefore, data on them is provided either at the current market value or at the original cost. The amount of the reserve for impairment of financial investments (account 59) is disclosed in the column “accumulated adjustment”.
By line "Loans provided" provide the amounts of loans issued to other organizations. Since loans are unquoted financial investments, they are reflected at their original cost (clause 21 of PBU 19/02). An organization can calculate their valuation at a discounted value, but it is necessary to provide confirmation of the validity of such a calculation (clauses 23, 37 of PBU 19/02). If such information is significant, then when using discounted value, in the explanations to the balance sheet and profit and loss statement, it is necessary to disclose data on the assessment of loans provided at this value, its value and the discounting methods used (clause 42 of PBU 19/02).
If at the end of the reporting year, when checking for impairment of financial investments for loans provided, the organization has information that the debtor has signs of bankruptcy, then the commercial organization can create a reserve for the impairment of such financial investments, which is disclosed in the statement of changes in equity.
By line "Deposits" the amount of deposits in credit institutions is reflected in account 55, subaccount 3 "Deposit accounts".
By line "Other" deposits under a simple partnership agreement, receivables acquired under an assignment of claim agreement, savings certificates, checks, bearer bank savings books, simple and double warehouse certificates, housing certificates, option certificates for shares, bonds, etc. are taken into account.
When filling out this section, you need to show not only the total volume of financial investments, but also highlight those types of investments that have a current market value. The current market value of securities means their market price, calculated in accordance with the established procedure by the organizer of trading on the securities market.
An organization can adjust the current market value monthly or quarterly. The difference between the valuation of investments at the current market value as of the reporting date and the previous valuation is applied to financial results and is taken into account as part of other income or expenses (Account 58 (91) - Account 91 (58)).
Financial investments for which the current market value is not determined are reflected in the statements at their historical cost.
Table 4 "Reserves" allows users of financial statements to obtain information about the availability and movement of materials, animals for growing and fattening, finished products, goods, deferred expenses, work in progress, goods shipped, i.e. information mentioned as a total on line 1210 of the balance sheet.
When filling out lines reflecting the availability and movement of materials, finished products and goods, you should be guided by PBU 5/01 “Accounting for inventories”.
Highlighting line "Materials" take into account balances and turnover in accounts 10 “Materials”, 15 “Procurement and acquisition of material assets” and 16 “Deviations in the cost of material assets”, if the organization’s accounting policy provides for the use of accounts 15 and 16, otherwise, information collected only on count 10.
The composition of material assets includes: basic materials; auxiliary materials; components; purchased semi-finished products; fuel; containers and packaging materials; Construction Materials; spare parts; inventory and household supplies; special tools, special devices and clothing; other material assets.
Inventories for which during the reporting year the market price has decreased or they have become obsolete or have completely or partially lost their original qualities are reflected in the table of explanations to the balance sheet and profit and loss account at their actual cost. At the same time, in accounting, they can be assessed at the current market value, taking into account the physical state of inventories, for which a reserve for depreciation of material assets is accrued.
When forming a reserve for a decrease in the value of material assets, an entry is made in accounting to the debit of account 91 “Other income and expenses” and the credit of account 14 “Reserves for a decrease in the value of material assets.” At the beginning of the period following the period in which this entry was made, the reserved amount is restored: an entry is made in the debit of account 14 and a credit of account 91. Analytical accounting for account 14 is maintained for each reserve. The column “amount of reserve for impairment of value” shows the credit balance of account 14 at the beginning and end of the reporting and previous reporting year.
In this table, in a separate line, agricultural enterprises also reflect information on the cost of young animals, adult animals in fattening and feeding; birds, animals; rabbits; bee families; adult cattle culled from the main herd for sale (without fattening); livestock accepted from the population for sale, the accounting of which is organized on account 11 “Animals for growing and fattening”.
When highlighting the item "Work in progress", information is used on the cost of products that have not gone through all stages of technological processing, are not completed, as well as work started but not completed (balance on accounts 20 "Main production", 21 "Semi-finished products of own production", 23 " Auxiliary production", 29 "Servicing production and facilities", 44 "Sale expenses", 46 "Completed stages of work in progress").
When filling out this article, trade organizations take into account the amount of distribution costs attributable to the balance of goods (as part of the item “Transportation costs”), reflected in account 44 “Sales expenses.”
Information about finished products is provided in the assessment that is legalized in the accounting policies of the organization. The assessment of finished products depends on the method of writing off administrative expenses and the application (or not) of account 40 “Product Output” and can be actual (full and reduced) or normative (full and reduced).
If administrative expenses are written off to the cost of production (D-t of account 20 - K-t of account 26), then the full production cost of finished products is formed, which includes the calculation item “General business expenses”. In the case of writing off administrative expenses to the cost of sales (D-t account 90 - K-t account 26), finished products are reflected in the reduced cost, i.e. excluding general business expenses.
If the accounting policy provides for the use of account 40 "Output of products (works, services)", then finished products are accounted for at standard or planned cost, and the amount of deviations of the actual cost from the planned one at the end of the reporting period is written off to the cost of sales (D-t account 90 - K -t account 40).
If there is no account 40 in the work plan, finished products during the reporting period are credited to account 43 “Finished products” from the credit of account 20 “Main production” at the standard (planned) cost, and at the end of the reporting period the accounting value is brought to the actual value by adjustment ( additional or reversal entry). Thus, in the second case, the finished products will be reflected in the table of notes to the balance sheet and profit and loss account at actual cost.
When displaying information about products, the following features should be taken into account. Goods in wholesale trade are valued at actual cost of purchase. If the accounting policy provides for the reflection of the acquisition of goods using accounts 15 “Procurement and acquisition of material assets”, 16 “Deviation in the cost of material assets”, then in the part related to the cost of goods, the balances on these accounts are taken into account together with account 41.
In accordance with PBU 5/01 “Accounting for inventories,” organizations can create a reserve for the depreciation of goods. In this case, in a separate column it is necessary to clarify the balance of the available reserve on account 14.
Retail trade organizations can keep current records of goods at sales prices, i.e. taking into account the trade margin. At the moment the goods are accepted for accounting, a markup is also made:
D-t account 41 - D-t account 60 - goods accepted for accounting; Invoice item 41 - Invoice item 42 - the trade margin is reflected.
In the balance sheet, the cost of goods (balance on account 41) is reflected minus the trade margin (balance on account 42). Thus, regardless of the method of current assessment, goods in retail trade are reflected in table. 4.1 Explanations to the balance sheet and profit and loss account at purchase price.
The "Inventory" table should also contain information about goods shipped, but only if the contract provides for a moment of transfer of ownership that differs from the generally established procedure. Goods shipped are valued at the cost adopted in the accounting policy for the corresponding assets - finished products, goods and other material assets. This can be the actual (full or reduced) cost, standard (full or reduced) cost, the purchase price of goods, etc.
This table also provides information on expenses for future periods (account 97), i.e. expenses that were incurred in the reporting or previous reporting periods, but related to future reporting periods.
They are written off as expenses of the reporting period evenly over the period to which they relate, or in proportion to the volume of products produced, which forms the basis for filling out the table. 4.1.
In the tables presented in section 5 "Accounts receivable and payable" information on the status of short-term and long-term accounts receivable and payable is reflected. Moreover, receivables and payables are shown depending on their repayment period - short-term (with a repayment period within 12 months inclusive) and long-term (with a repayment period more than 12 months after the reporting period).
This section is filled out according to synthetic and analytical accounting data for settlement accounts, highlighting in a separate column the amount of the reserve for doubtful debts formed but not used at the beginning and end of the reporting year. It is recommended to provide details on the following lines.
- 1. Accounts receivable:
- - settlements with buyers and customers (debit balance on account 62);
- - advances issued (debit balance on account 60);
- - other (debit balance on accounts 68, 69, 70, 71, 73, 75, 76).
- 2. Accounts payable:
- - settlements with suppliers and contractors (account credit balance (I));
- - advances received (credit balance on account 62);
- - calculations for taxes and fees (account credit balance 68.69);
- - loans (credit balance on accounts 66, 67, subaccount "Loans";
- - loans (credit balance on accounts 66.67, subaccount “Loans”);
- - other (credit balance on accounts 70, 71, 73, 75, 76).
IN Table 6 "Production costs" data on the organization’s costs is reflected by their elements:
- - material costs (line 5610);
- - labor costs (line 5620);
- - deductions for social needs (line 5630);
- - depreciation (line 5640);
- - other costs (line 5650);
- - total by elements (line 5660).
Here is a breakdown of the expenses included in the section “Income and expenses from ordinary activities” of the Profit and Loss Statement under the items “Cost of products (works, services)”, “Administrative expenses” and “Commercial expenses”. When filling out this section, you must be guided by PBU 10/99 “Expenses of the organization.”
The data is reflected as a whole for the organization without taking into account on-farm turnover. During on-farm turnover, costs are generated on some accounts and then written off to others. On-farm turnover includes costs associated with the transfer of products (work, services) within the organization for the needs of its own production, service farms, etc. The costs of defects, downtime due to external reasons, are not included in expenses for ordinary activities. compensated by the guilty persons (legal and physical), as well as expenses written off in the prescribed manner to the accounts of financial results and capital.
Separately, this section provides data on changes in balances of work in progress - according to accounts 20, 23, 39, finished products - account 43, etc. (lines 5670 or 5680), which allows you to calculate the indicator of line 5600 "Expenses for ordinary activities - total" .
Table 7 "Estimated liabilities" is filled in if the specified reserves were created in accordance with PBU 8/2010 “Estimated liabilities, contingent liabilities and contingent assets”.
A contingent liability arises for an organization as a result of past events in its economic life, when the existence of an obligation for the organization at the reporting date depends on the occurrence (non-occurrence) of one or more future uncertain events beyond the control of the organization. Contingent liabilities also include an estimated liability existing at the reporting date that is not recognized in accounting, since there is no certainty that there will be a decrease in the economic benefits of the organization necessary to fulfill the estimated liability, or it is impossible to reasonably estimate the amount of the estimated liability. To create such a reserve, account 96 is used.
When filling Table 8 "Securing Obligations" it is necessary to be guided by pledge agreements, guarantees, guarantees, etc., concluded in accordance with the requirements of the Civil Code of the Russian Federation, as well as instructions for off-balance sheet accounts in accordance with the Instructions for using the chart of accounts:
- - account 008 “Securities for obligations and payments received”;
- - account 009 “Securities for obligations and payments issued.”
Security (guarantee) is a document in which one organization guarantees another to fulfill obligations within a certain period of time for a certain amount and confirms that it is ready to repay the debt if it arises as a result of failure to fulfill obligations.
By lines 5800 "Securities for obligations received - total" for the corresponding period, debit balances on account 008 are given. From the total amount of collateral, the cost of bills received is highlighted as a separate line.
Off-balance sheet account 008 summarizes information on the availability and movement of guarantees received to ensure the fulfillment of obligations and payments, as well as other security received for goods transferred to other organizations (guarantee, pledge, etc.). The monetary value of the security received is determined based on the terms of the agreement. The collateral recorded in account 008 is written off as the debt is repaid.
To line 5800 can be opened the line “Property pledged”, in which The total value of the pledged property held by the organization is given. The lines below indicate its decoding by type.
As a rule, collateral is associated with the issuance of a loan or loan. The subject of the pledge can be any property, including things and property rights (claims), with the exception of property withdrawn from circulation and claims related to the identity of the creditor (Article 336 of the Civil Code of the Russian Federation). Securities, fixed assets, and inventories held there until the debt is fully repaid are accepted as collateral. The pledgee's pledge amounts are also recorded in off-balance sheet account 008.
By lines 5810 "Securities for obligations issued - total" for the corresponding period, the collateral recorded in off-balance sheet account 009 is reflected. This line is filled in similarly to the line “Collateral for obligations received - total”.
This account reflects information about the availability and movement of guarantees issued to other persons to secure obligations and payments (payment for goods received, repayment of credit, loans, etc.). Amounts on account 009 are written off as the debt is repaid.
To decipher line 5810, the line “Property pledged” can be opened, where you should reflect the cost of such property, and in the lines below provide its decoding. The mortgagor reflects such amounts in off-balance sheet account 009.
Table 9 “State aid” is filled in if budget funds are available and used, including budget loans.
Explanations to the financial statements are part of the organization's annual report. Moreover, it is mandatory. This is stated in the joint letter dated June 20, 2013 No. ED-4-3/11174@ of the Ministry of Finance and the Federal Tax Service of Russia. Here you will find a sample of such explanations and recommendations for their preparation.
The organization must determine the form of textual explanations to the financial statements and their content independently. Usually, this is a separate independent document. It should contain additional information that is not available in other reporting forms. Most often, they formulate explanations for the balance sheet and financial statements.
According to clause 4 of Order No. 66n of the Ministry of Finance of Russia, explanations must be drawn up in tabular or text form. The content of the explanations, drawn up in tabular form, is determined by organizations independently, taking into account the Sample of explanations given in Appendix 3 to Order No. 66n.
Composition of explanations
The main part of the textual explanations is data on the results of the review of the annual financial statements. In addition, according to PBU 4/99 “Accounting statements of an organization,” explanations to the annual financial statements must contain:
- types of activities of the organization that can be considered significant;
- average annual number of employees at the end of the reporting year (or number of employees as of the date on which the financial statements are prepared);
- composition (by name and position) of the organization’s leaders and its control bodies (for example, members of the audit commission);
- data on the organization’s income and expenses for its main and other activities (sales volumes, cost composition, reserve composition, non-operating income and expenses);
- information about targeted funds, sources of their income and expenses paid at their expense;
- composition of sources and agreements under which the organization receives non-monetary funds from counterparties;
- information on the composition and movement of accounts payable.
This is how the explanations to the balance sheet (sample) may look like in terms of deciphering the composition of accounts payable.
An explanatory note to the financial statements may contain a breakdown of the composition of expenses for ordinary activities. They are detailed by cost elements. Let us recall that such expenses are reflected in the debit of expense accounts (20, 25, 26, etc.). But sales expenses, which are reflected in account 44, also fall into this category.
If at the end of the year the organization has balances of work in progress and finished products, then the data on production costs and the cost of finished products will not be equal to its final cost. Therefore, the explanations to the financial statements may contain a separate line in which the difference that has arisen is deciphered.
In the explanations, the organization will reflect that the discrepancy is due to changes in the value of work in progress balances and finished products. In addition, there should be an arithmetic linkage of these indicators in the accounting records.
Separate parts of this document must contain information about changes in the structure of the organization (for example, when it is transformed, divided or merged).
Here are textual explanations for financial statements (sample) in these situations:
Explanation of the composition of property in explanations
According to PBU 6/01 “Accounting for Fixed Assets” and PBU 14/2007 “Accounting for Intangible Assets”, in the text explanations it is necessary to disclose information about the property that is included in fixed assets and intangible assets. In particular, you need to provide information:
- on methods for valuing such property if it was received under agreements providing for the repayment of obligations in non-monetary means (for example, under barter agreements);
- the useful life of the property and the procedure for its evaluation;
- methods of calculating depreciation and depreciation (for non-depreciable property);
- real estate objects that, at the time of preparation of financial statements, are in the process of state registration, but have already been put into operation and are actually used in the organization’s activities;
- depreciation amounts on off-balance sheet accounts.
In accordance with PBU 5/01 “Accounting for inventories”, the explanations provide data on methods for assessing inventories by their groups and types, the consequences of changes in these methods (if such changes occurred in the reporting year), as well as the amount of accruals and write-offs of reserves to reduce the cost of inventories.
Composition of loans and borrowings
Some data is reflected in textual explanations if certain transactions were carried out in the reporting year. For example, they reflect information on the amounts of government assistance received, loans and borrowings, facts of transfer of short-term debt to long-term debt and vice versa.
So, for example, if an organization received a credit or loan during the year, it should provide:
- the repayment period and changes in the amount of the debt, as well as the details of the agreement under which the debt arose;
- the amount of expenses included in other expenses and in the value of investment assets (for example, fixed assets);
- the amount of the weighted average rate on loans and credit, if applicable.
A situation is possible when the lender has not fulfilled the terms of the loan agreement (credit agreement) or has not fully fulfilled them. In this case, the borrower, in the explanations to the annual financial statements, provides data on the amounts that were not received (clause 4 of PBU 15/2008 “Accounting for expenses on loans and credits”).
Currency transactions in explanations
If the organization receives assets or money in foreign currency, on the basis of PBU 3/2006 “Accounting for assets and liabilities, the value of which is expressed in foreign currency,” the explanations decipher the data on foreign exchange transactions:
- the amount of exchange rate differences that are included in other income or expenses;
- the amount of exchange rate differences that are accounted for “otherwise”;
- the official exchange rate of the Central Bank of the Russian Federation in force on the date of preparation of the financial statements.
Additional Information
In the explanations, you can also provide additional information related to the formation of the company’s authorized capital. For example, joint stock companies must provide data on the number of their own issued and fully paid shares. Information on securities that are issued but not paid or partially paid is disclosed separately in the explanations. Additionally, data is provided on the nominal value of shares purchased from shareholders, as well as those owned by subsidiaries and dependent organizations (clauses 27, 31 of PBU 4/99).
The balance sheet is a document whose preparation should be taken into account very seriously. It presents data on a specific enterprise for the tax service, government statistics bodies, and structural divisions of the organization for analytics and management.
In addition to the formation of this document, it is required drawing up explanations to him.
What is it and who makes it
The document explaining the financial statements contains information about certain assets and liabilities of the company, which are reflected in the balance sheet, along with income and expenses, that is, financial results.
The accounting employee in the specified documentation explains the information that is most important for auditors. Thanks to this information, they are able to assess the financial condition of the enterprise. The explanation usually states:
- original cost and accrued depreciation at the beginning and end of the reporting period;
- price indicator of incoming and outgoing property;
- How is depreciation calculated in accounting?
Drawing up explanations for the balance sheet - responsibility of every enterprise, if it is not small. Small organizations do not need to issue these explanations when their balance sheet is not subject to audits.
Regulatory regulation
The first three sections reveal the elements that make up intangible assets, fixed assets and beneficial contributions to the assets of the enterprise, as well as depreciation cost. Consequently, such explanations make it possible to substantiate in detail the initial cost of depreciable property and the accrued depreciation rates.
The section on accounts receivable and payable covers this issue in detail. taking into account all current accounts. At the same time, the debts of creditors and debtors are divided into short-term and long-term. Long-term includes information about debts for which payments are planned later than one year from the reporting period.
The paragraphs characterizing information about overdue payments to the company contain data on debts for which the specified repayment period specified in the contractual agreements has expired. Debt overdue for more than three months from the reporting period is commented on here.
The column about the costs of ordinary activities consists of the enterprise’s expenses, grouped in accordance with the following economic elements:
- material costs;
- costs associated with paying wages;
- contributions for social needs;
- depreciation;
- other expenses.
The information listed applies to the entire company, and does not take into account intra-company turnover. It includes the costs of transferring finished products, work performed and services provided necessary for the needs of the enterprise relating to the production process, farm maintenance and other needs.
On-farm turnover also includes costs due to defects, downtime, written-off assets, and compensation for guilty individuals and legal entities.
Federal Law No. 402 establishes the rules for drawing up explanatory notes for the balance sheet of an enterprise. These explanations should consist of a brief description of the company’s work, including its financial, current, and investment activities.
The note should also include a description main indicators of the work process and factors that influenced the economic results of the enterprise during the reporting period, including methods of making decisions based on the results of assessing the annual financial report.
In particular, essential data must be provided to provide a fairly complete and objective picture of the property and capital status of the company. The note still needs to include information on income, expenses and liabilities identified after the annual balance sheet is prepared before it is presented.
The analysis of the state of capital and fixed assets of the enterprise, as well as decision-making on the distribution of income, depend on these indicators.
The notes to the financial statements include information regarding profits and losses, including the presence and movement at the beginning and end of the reporting date:
- relevant funds of an intangible nature;
- basic resources;
- property leased;
- certain capital investments;
- debts of third parties to the enterprise.
Documents explaining the financial statements must contain:
- changes in the authorized, reserve, additional financial resources of the company;
- the number of securities from a joint-stock, dependent, subsidiary company, paid in full, or some part thereof;
- reserves for future costs, estimated resources, sizes for the initial and final reporting period of financial capital, its movements throughout the entire accounting period;
- the presence of certain types of debt of the organization to other legal entities, relative to the starting and ending reporting date;
- sales volumes of finished products, work performed and services provided, according to the type of production process, as well as the geographic sales market;
- costs associated with production, that is, distribution costs;
- other costs and income;
- any security provided and received for obligations, together with payments from the enterprise;
- completed operations;
- collaborating parties;
- assistance from the state;
- income from one share.
In the explanatory note to the balance sheet, as well as the profit and loss statement, you should separately indicate indicators:
- contingent expenses or income regarding income taxes;
- temporary and permanent tax differences created during the reporting period and occurring in the previous tax period;
- deferred and permanent tax contributions, including balances of tax assets;
- remaining tax liabilities and assets written off to income and expense accounts due to the disposal of relevant funds and obligations, according to the agreement;
- changes in the tax rates used, in contrast to the previous accounting period, including explanations of the reasons for the adjustments made.
To indicate quantitative information, it is best to use an expanded table, comparing balances after cash turnover, in accordance with the initial and final stages of accounting time.
Additional information is provided in this lecture.
I am often asked about accounting documentation. One of the main documents in this area is the Explanation of the Balance Sheet, which describes in detail all the nuances relating to the financial side of the enterprise’s activities. Why are Explanations to the Balance Sheet and Statement of Financial Results required, and how should they be prepared?
What are Explanations for Balance Sheets and Reports?
This document is an integral part of the enterprise’s accounting reporting for the past year. The legislative importance of this document is enshrined in Articles 14 of the Law of the Russian Federation dated December 6, 2011 and in the order of the Ministry of Finance of the Russian Federation dated July 2, 2010 (clause 4, No. 66-n).
The introduction of mandatory Explanations to reports is necessary so that regulatory authorities can trace in detail the financial history of the enterprise. In fact, it is the Explanation that deciphers the numerical indicators that appear in the reporting. Without explanation, it is impossible to realistically assess the state of the enterprise, the result of its activities and currency circulation for the year.
Taking into account all these points, we can conclude that the Explanation of the Balance Sheet is an important document and must be taken seriously.
Who does not write an Explanation?
Any organization maintaining an accounting report is required to provide an Explanation to it. Exceptions include:
- Companies with the right to simplified reporting.
- Small enterprises not subject to audit.
- Non-profit organizations are deprived of the need to provide an Explanation to the report in accordance with paragraph 6 of the order of the Ministry of Finance of the Russian Federation dated July 2, 2010.
In some cases, small companies also provide the Explanation. These include changes to the enterprise's accounting policies.
Form to fill out Explanations
The most popular forms of filling out this document are text and tabular, although most often they are combined. The design of tables is a more convenient option for checking and an easier option for drawing up Explanations to the financial statements. At the same time, the compilers (the head of the enterprise and the chief accountant) themselves decide what to include in it.
In some cases, when an Explanation is required from the tax service or for statistical accounting, after completing the column indicating the names of the indicators, it is necessary to enter an additional column “Code”. Line numbers are set in accordance with the requirements of the law (Appendix 4 to the mentioned order of the Ministry of Finance No. 66-n).
The main sections of the document include:
- Information on intangible assets and expenses spent on R&D (research work).
- Fixed assets of the company.
- Investments of a financial nature during the specified period (previous year).
- The company's asset inventories.
- Debts (both receivables and payables).
- Information indicating the amount of production costs.
- Indication of estimated liabilities and ensuring their implementation.
The last point indicates the availability and amount of government assistance.
Now let's go through each of the content points in more detail to present the full picture.
R&D and intangible assets
The first paragraph describes in detail lines 1110, 1120, 1190 of the Balance Sheet, dedicated to intangible expenses, the effectiveness of research activities and non-current assets, respectively.
This part of the Explanation should consist of 5 tables:
- The first table will focus on the presence and movement of intangible assets owned by the company. Provide information about the original cost of depreciation received for the specified period, the results of revaluations, and impaired intangible assets. Describe in detail the amounts lost due to the impairment of intangible assets. Information must be reflected both generally and specifically for each group. The time period for displaying data is limited to the reporting year and, if necessary, the previous year. The initial cost may be either the current market value or the amount required for restoration.
- The second table is about the initial assets created by the organization. You also indicate the reporting date and enter information about independently created assets in the column.
- The third table contains data on the repaid value of intangible assets. We indicate the reporting time, name, and cost of used but depreciated assets.
- The fourth table is information about R&D. If any research work was carried out on the basis of the organization during the accounting period, indicate about it and the cost of research expenses.
- The fifth (and last in the first paragraph) table provides information on the amount of costs for those studies on the acquisition of intangible assets that have not yet been formalized or are ongoing. It is necessary to set out in detail the expenses for two years on unfinished and inconclusive research.
Company's fixed assets
Here we will consider data from three lines of the Balance Sheet: 1150, 1160, 1190 (fixed assets, investments in material assets and income from them, non-current assets).
Four tables are created:
- The first describes data on the movement of fixed assets, their initial cost and accumulated depreciation. In addition, disclose information about the disposal and revaluation of funds. Separately, you should indicate the cost of each object included in fixed assets and investments.
- The second table is devoted to unfinished capital investments. Investments made during the year are listed, excluding expenses on R&D and intangible assets.
- The third table informs the inspector about the change in the value of fixed assets due to the replenishment of the enterprise’s infrastructure: additions, additional equipment, reconstruction or liquidation of facilities. It is indicated separately what has become cheaper and what has become more expensive.
- The fourth table will report other uses of the underlying asset. This includes rent, collateral, and funds transferred for conservation.
Investments
Financial investments are described in lines 1170 and 1240. This section consists of the following tables:
- Table 3.1. It discloses information about the initial value (at the beginning and end of the period under review) of investments, as well as what changes they have undergone. The name of the table, as a rule, is: the presence and movement of financial investments. Information is disclosed for each variety separately.
- Table 3.2. Data on collateral financial investments and their status are recorded. The name will be as follows: other use of financial investments.
Reserves
In this part, the data on line No. 1210 is recorded. Here you need to indicate two plates for each type of inventory.
The cost price must be written down, as well as the amount of reserves for price reductions at the beginning and end of the period, and its changes. Separately, you need to pay attention to collateral and unpaid inventories under agreements.
Accounts payable and receivable
In this fragment, attention is paid to the following lines of the balance sheet: 1230, 1410, 1450, 1510, 1520. Various types of debts and loan funds are taken into account.
The section consists of two tables with information for accounts payable and the same number of tables for accounts receivable data. You must provide the following information:
- The first table contains information on the availability of accounts receivable and data on the reserve for doubtful debts. The name of the plate will be: Availability and movement of accounts receivable. Amounts are indicated in full, in accordance with agreements.
- The second table reveals information about overdue debts by the reporting date and by the end of the two previous years. The name of the plate is overdue accounts receivable. The amounts are indicated in the balance sheet and in full.
- The third table is filled out separately for short-term and long-term debts. It is necessary to indicate information about the remaining debt at the end and beginning of the period, and pay attention to changes. Name – presence and movement of accounts payable.
- The fourth table discloses information on the remaining overdue debt (accounts payable) at the end of the reporting period and at the end of the two previous years.
Production costs
The production costs section is represented by just one plate, which contains data on the following lines of the Financial Results Report:
- Line No. 2120 (cost of sales).
- Line No. 2210 (commercial expenses).
- Line No. 2220 (cost management).
In the part about production costs, you need to indicate the composition of expenses in the context of their elements, while the amount of funds is recorded for two periods - the previous and the reporting one.
Estimated liabilities
In this part, as a rule, there is only one plate explaining the following balance lines:
- Line No. 1430.
- Line No. 1540.
The table reflects the amounts of residual liabilities at the end and at the beginning of the period. In addition, you need to indicate the amount of liabilities that are repaid, recognized or excess. This information must be contained separately, in accordance with each type of obligation.
Securing obligations
In this section there will also be only one plate, which contains data on off-balance sheet accounts number 008, 009. It must be filled out separately for issued and received obligations (for each type - pledges and guarantees, bank guarantees, retention of property, letters of credit, etc. ).
State aid
We are talking about borrowed assets and income for future periods. Indicate in detail the data on funds received, which are considered budget funds, loans for the reporting year (and also for the previous year). The size of government loans is prescribed according to their intended purpose.
additional information
If there is a need to disclose additional data, fill out a separate paper, the form of which is not strictly regulated. As practice shows, sections can be like this:
- Characteristics of the enterprise's activities (briefly).
- Features of accounting policies.
- The main factors that influenced the company's results.
- Information about parties associated with the institution.
Finally
This document is of great importance for state regulatory authorities. Therefore, in order to avoid clashes with the tax and other services, you need to be especially careful in drawing up explanations. Each section contains specific data on the financial statements of the enterprise. If necessary, fill out a separate document with additional characteristics of the company in free form.