Contracts and Negotiations

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

gain and loss contingencies, valuations and accounting policies, post balance sheet events, financial statements, depreciation, inventory