Company Selected: Apple

In order for a company to distribute its financial statements to the public, it is required to follow the "generally accepted accounting principles" (GAAP). GAAP is essential in standardizing and regulating accounting definitions, assumptions, and methods. A company generally lists the significant accounting policies as the first note in the financial statements. Review the financial statement notes of the business you have selected for your Financial Statement Analysis Report. Select two of the significant accounting policies and discuss how each policy impacts the financial reporting for that entity. 

 

a)Financial statement notes are the supplemental notes that are included with the published financial statements of a company. The notes are used to explain the assumptions used to prepare the numbers in the financial statements, as well as the accounting policies adopted by the company.

 Items that appear in the notes to the financial statements:

 Basis of presentation

The first section in the financial statement notes explains the basis of preparing and presenting the key financial statements.

  Accounting policies

The accounting policies section provides information on the accounting policies adopted by management in preparing the financial statements. Disclosing the accounting policies helps users interpret and understand the financial statements better.

  Depreciation of assets

 The asset depreciation section provides information on the method adopted by the company when depreciating the assets. Depending on the depreciation method used, there may be significant fluctuations between the net income in the income statement and the value reported in the balance sheet. Providing information on the depreciation method in the notes informs the users of the differences in net incomes reported in the financial statement.

Valuation of inventory

The valuation of inventory notes informs users how the company valued its inventory, making it easy for them to compare inventory figures from one period to another or vice versa other competing entities.

Step-by-step explanation

b)Accounting policies are the specific principles and procedures implemented by a company's management team that are used to prepare its financial statements.

Significant accounting policies are as follows;

Accounting conventions followed.

The accounting entity convention is the basic principle that the personal transactions of the owner(s) should be kept separate from those of the business. ... The historical cost convention is a rule which states that all transactions are recorded at their original value, and adjustments are not made for inflation.

Valuation of fixed assets.

A company can account for changes in the market value of its various fixed assets by conducting a revaluation of the fixed assets. Revaluation of a fixed asset is the accounting process of increasing or decreasing the carrying value of a company's fixed asset or group of fixed assets to account for any major changes in their fair market value.A fixed asset or group of fixed assets is recorded on a company's balance sheet at the cost paid for the asset. Afterward, there are two methods used to account for changes in the value of the fixed asset or assets.