Definition
The financial accounting term contracts and negotiations refers to supplemental information appearing in a company's financial statement. These explanations provide insights into restrictions or agreements associated with certain assets or liabilities.
Explanation
Contracts and negotiations are one of several types of information that is supplementary to the items appearing on a company's balance sheet or income statement. Examples of these disclosures include:
Negotiations: a process of bargaining, the outcome of which can result in a contract or agreement between the company and one or more parties.
Contracts: a legal agreement between the company and one or more parties, outlining any restrictions on the use of an asset or the repayment of a liability.
Providing information on the status of materially significant negotiations or contracts with other parties helps the reader of a financial statement to understand the potential impact such agreements can have on the company in the future. For example, the requirements of a capital lease, or the provisions of a pension plan can have noteworthy impact on the earnings of the company in the years ahead.
Accounting practices mandate the need to disclose any information that can have a material effect on an enterprise.
Related Terms
The financial accounting term contingency is defined as an event with an uncertain outcome that can have a material effect on the balance sheet of a company. Gain and loss contingencies are noted on the company's balance sheet and income statement when they are both probable and reasonably estimated.
Moneyzine EditorJanuary 19th, 2024- Moneyzine EditorNovember 6th, 2024
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The accounting term financial statement refers to a series of documents that reflect the collection and summary of accounting data. Financial statements include the balance sheet, income statement, cash flow statement, and the statement of retained earnings.Moneyzine EditorNovember 6th, 2024
The financial accounting term depreciation is sometimes defined as a decline in tangible plant's service potential. Depreciation is a method of allocating the cost of a tangible asset in a systematic manner to those time periods that benefit from the use of the asset.Moneyzine EditorJanuary 16th, 2024
The financial accounting term inventory is used to describe the balance sheet line item that includes the value of raw materials, work in process, finished goods ready for sale, and returned goods that can be resold.Moneyzine EditorNovember 6th, 2024
