ASC 205: The Basics of Financial Statement Presentation and Disclosure (2024)

Are you looking for a comprehensive guide to financial statement presentation and disclosure? Look no further! This blog post will discuss the basics of ASC 205 – Presentation of Financial Statements.

We’ll explore four subtopics within the chapter, including overall, discontinued operations, liquidation basis of accounting, and going concern. Then, with examples to help you understand how they apply to your business, you’ll have all the information you need in one place.

Get up-to-date on the latest accounting standards so that your financial statements are accurate and compliant with regulations. Learn from our experts as we look at each topic covered by ASC 205.

Read this blog post for comprehensive guidance on financial statement presentation and disclosure!

What is GAAP?

GAAP is a common set of accounting principles, standards, and procedures. Public companies in the United States must follow GAAP when they compile their financial statements. The Financial Accounting Standards Board (FASB) maintains GAAP. In addition, the board issues new rules as necessary to ensure that GAAP remains up-to-date.

Where Can IResearch GAAP?

FASB provides free online access to the Accounting Standards Codification, the only authoritative source for US GAAP. FASB and the AICPA also offer access to other authoritative literature that supplements the GAAP Hierarchy.

To access the Accounting Standards Codification, visitasc.fasb.org. Anyone can access the codes using a basic account. For more advanced features, you can set up a professional account. If you work at a company subject to GAAP rules, your company likely has a professional subscription.

What is ASC 205?

ASC 205 guides the presentation of financial statements. This guidance includes topics such as overall financial statement presentation, discontinued operations, liquidation basis of accounting, and going concern. This chapter doesn’t dictate specific accounting policies so much as it sets the framework for the detailed GAAP rules that follow.

ASC 205-10: Overall

The objective of ASC 205-10 is to ensure that users of financial statements receive information that is relevant and reliable. This section establishes general guidelines for the presentation of financial statements. For example, ASC 205-10 requires companies to present a balance sheet, income statement, and cash flow statement.

This section also sets the number of periods businesses must include in financial statements and requires data to be chronological, estimates to be called out, and accounting policies to be disclosed.

ASC 205-20: Discontinued Operations

This section establishes guidelines for reporting discontinuation, which GAAP defines as “a component of an entity that has been disposed of or is classified as held for sale, and represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results.”

ASC 205-30: Liquidation Basis of Accounting

This section establishes guidelines for reporting on a liquidation basis, defined as “a method of accounting in which assets are stated at the amounts that will be realized from their sale or other disposition and liabilities are stated at the amounts that will be paid to settle them.”

ASC 205-40: Going Concern

This section aims to ensure that users of financial statements receive information about an entity’s ability to continue as a going concern. To that end, this section establishes guidelines for reporting on a going-concern basis. FASB defines a going concern as “the assumption that the entity will continue operating for the foreseeable future.”

Why Does ASC 205 Matter?

The presentation and disclosure of financial statements can significantly impact the decisions made by users of those statements. For example, if a company or individual considers investing in another company, the investor will want to know whether that company is a going concern. Accordingly, ASC 205-40 requires companies to disclose any material uncertainties impacting their ability to continue as a going concern.

ASC 205 gives a framework for accounting to consider the detailed guidance in the rest of the accounting standards. A company’s GAAP-compliant accounting policies need to be able to feed into external disclosures that meet the requirements of this chapter.

Let’s Recap

In short, ASC 205 establishes general guidelines for presenting financial statements. This includes overall financial statement presentation, discontinued operations, liquidation basis of accounting, and going concern. As a result, the presentation and disclosure of financial statements significantly impact the decisions made by users of those statements. In addition, ASC 205 gives a framework to consider the detailed guidance that follows in the rest of the accounting standards.

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