The financial accounting term parenthetical explanation refers to an approach to disclosing information appearing in financial statements. Parenthetical explanations are needed on a company’s balance sheet when additional precision or completeness is required.
Parenthetical explanations are one of several ways to communicate material information that is supplementary to the items appearing on a company’s balance sheet. These short and concise explanations bring clarity to the reader of the company’s financial reports. Disclosures are deemed necessary if the information appearing on a statement is thought to be misleading without their inclusion.
These explanations are prominently displayed within the body of the financial statement. Displaying explanations in this manner is thought to be advantageous when compared to other communication methods such as supporting schedules or notes that might accompany the report.
Company A repurchases 20,000 shares of common stock at $80 per share, or $1,600,000. This line item would appear in the owner’s equity section of the balance sheet as treasury stock. The parenthetical explanation for this item would be:
|Less: Treasury Stock (20,000 shares at $80 per share)||$1,600,000|