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Analyzing Disclosures Essay

702 words - 3 pages

Analyzing Disclosures
The footnote describing cash, cash equivalents, receivables and inventories for Home Depot for the year ending on January 31, 2010, are all included in the Summary of Significant Accounting Policies. The Summary of Significant Accounting Policies is always the first footnote in financial statements prepared. This footnote is prepared in accordance with generally accepted accounting principles (GAAP) and contains the general policies for recording assets, liabilities, revenues and expenses. When firms wish to include more extensive remarks about these elements of the financial statement, they often add footnotes dedicated specifically to an area, such as inventories, ...view middle of the document...

They have a very small balance in receivables from a subsidiary and this subsidy informs readers that the amounts of these receivables are too small to report an allowance for uncollectible accounts on the financial statements. .
Merchandise inventories within the footnotes are relatively simple this is due to the fact that Home Depot is a merchandise firm and purchase all of their goods. Manufacturers who make their inventory would have more extensive disclosures about the cost of their items held for sale. The inventory is reported on a first-in, first-out basis. This means that their most recent costs are in cost of goods sold in the income statement and the value for inventory on their balance sheet is likely very old costs. Home Depot also mentions that it checks regularly to be sure the cost of inventory is not above the market (lower of cost or market).
To comply with audit guidelines, Home Depot takes cycle counts (spot checks quantity) and conducts inventory counts (full facility) on a regular basis to be sure stock reported matches stock on the shelves. The company estimates shrinkages (or "swells") on a store-by-store basis to reflect local conditions and indicates that these...

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