Practical examples of accounting policies in notes for real-world financial statements

Real-world style examples of accounting policies in notes

Let’s skip the textbook definitions and go straight into practical, investor-ready examples of accounting policies in notes. These are the kinds of disclosures you’ll see in a Form 10-K, audited private company financials, or IFRS-based annual reports. I’ll use plain language but keep the structure and tone close to what auditors actually sign off on.

Throughout, I’ll highlight several examples of accounting policies in notes, show how they’re typically phrased, and point out where 2024–2025 trends are influencing the wording.

Revenue recognition: the most scrutinized example of accounting policies in notes

Revenue recognition is usually the first and longest policy. Under US GAAP (ASC 606) and IFRS 15, companies must explain how and when they recognize revenue. That makes this one of the best examples of accounting policies in notes because you can see management’s judgment in plain sight.

Sample policy language – subscription software company (US GAAP, ASC 606):

Revenue Recognition
The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers. Revenue is recognized when control of the promised goods or services is transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The Company’s revenues are primarily derived from subscription fees for access to its cloud-based platform and, to a lesser extent, from professional services.

Subscription revenues are recognized on a straight-line basis over the term of the contract, which is generally one to three years, beginning on the date the customer is provided access to the platform. Professional services revenues, which primarily consist of implementation and training services, are recognized over time as the services are performed, as the customer simultaneously receives and consumes the benefits of the services.

The Company’s contracts typically include a single performance obligation. When contracts include multiple performance obligations, the transaction price is allocated to each performance obligation based on its relative standalone selling price.

This is a clean example of examples of accounting policies in notes because it:

• Names the standard (ASC 606)
• Describes major revenue streams
• Explains timing (over time vs point in time)
• Addresses multiple performance obligations

2024–2025 trend: More companies are adding short, plain-English explanations of why they recognize revenue over time or at a point in time, especially in tech and services. Regulators continue to focus on transparent disclosures around variable consideration and contract modifications. For background on the standard itself, the FASB provides ASC 606 resources at https://www.fasb.org.

Inventory and cost of goods sold: classic examples include FIFO vs weighted-average

Inventory accounting is one of the simplest but most telling examples of accounting policies in notes. The method you choose (FIFO, weighted-average, specific identification) can shift margins, especially in inflationary environments.

Sample policy language – manufacturer using FIFO:

Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out (FIFO) method. Cost includes direct materials, direct labor, and an allocation of manufacturing overhead based on normal production capacity. Net realizable value represents the estimated selling price in the ordinary course of business, less estimated costs of completion and disposal.

The Company records inventory write-downs for excess, obsolete, or slow-moving items based on management’s review of inventory levels, historical usage, forecasted demand, and product life cycles. These write-downs are included in cost of goods sold in the consolidated statements of income.

If you’re looking for a straightforward example of an accounting policy in notes that directly affects gross margin, this is it. When analysts compare companies, they often start with these simple, visible choices.

Property, plant, and equipment: depreciation policy as a clear example of management judgment

Depreciation methods and useful lives are another rich area for examples of accounting policies in notes. Tiny tweaks here can quietly move earnings.

Sample policy language – mixed asset base, straight-line depreciation:

Property, Plant, and Equipment
Property, plant, and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives, as follows: buildings, 20–40 years; machinery and equipment, 3–10 years; furniture and fixtures, 3–7 years; and leasehold improvements, the shorter of the lease term or the estimated useful life.

Expenditures for repairs and maintenance are expensed as incurred, while expenditures that significantly increase the useful life or productivity of an asset are capitalized. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in earnings.

This is one of the best examples of accounting policies in notes for teaching junior staff how to write clear, audit-ready language: short, specific, and tied to actual asset classes.

Leases under ASC 842/IFRS 16: modern examples of accounting policies in notes

Leases are where many older templates are now outdated. Under ASC 842 (US GAAP) and IFRS 16, right-of-use (ROU) assets and lease liabilities sit on the balance sheet, and your lease policy must explain how you got there.

Sample policy language – lessee accounting under ASC 842:

Leases
The Company accounts for leases in accordance with ASC 842, Leases. At contract inception, the Company determines whether an arrangement is or contains a lease. Operating leases are included in operating lease right-of-use (ROU) assets and operating lease liabilities on the consolidated balance sheets. Finance leases are included in property, plant, and equipment and finance lease liabilities.

ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. The Company generally uses its incremental borrowing rate to discount lease payments, as the implicit rate in the lease is typically not readily determinable. Lease terms include options to extend or terminate the lease when it is reasonably certain that the Company will exercise those options.

Lease expense for operating leases is recognized on a straight-line basis over the lease term. Short-term leases with a term of 12 months or less are not recognized on the balance sheet; related lease payments are recognized in expense as incurred.

If you’re searching for current, post-ASC 842 examples of accounting policies in notes, this structure is what 2024–2025 filings still lean on. The SEC has pushed for more clarity around discount rates and extension options, so many companies now expand those paragraphs for transparency.

Authoritative guidance for US filers is available at the FASB site: https://www.fasb.org.

Impairment of long-lived assets and goodwill: examples include trigger-based testing

Impairment policies are where boilerplate meets judgment. These notes matter in industries facing rapid technology change or economic pressure.

Sample policy language – long-lived assets (US GAAP):

Impairment of Long-Lived Assets
The Company reviews long-lived assets, including property, plant, and equipment and definite-lived intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Indicators of impairment include, but are not limited to, a significant decline in the observable market value of an asset, significant changes in the manner in which an asset is used, or adverse changes in legal or business factors.

If such indicators are present, the Company compares the carrying amount of the asset or asset group to the estimated undiscounted future cash flows expected to result from its use and eventual disposition. If the carrying amount exceeds the undiscounted cash flows, an impairment loss is recognized in an amount equal to the excess of the carrying amount over the asset’s fair value.

Sample policy language – goodwill (annual and trigger-based testing):

Goodwill
Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations. Goodwill is not amortized but is tested for impairment at least annually, or more frequently if events or changes in circumstances indicate that the carrying amount may be impaired. The Company performs its annual impairment test as of October 1.

The Company may first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the qualitative assessment indicates that an impairment is more likely than not, or if the Company elects to bypass the qualitative assessment, the Company estimates the fair value of the reporting unit and compares it with its carrying amount. If the carrying amount exceeds fair value, an impairment loss is recognized.

These are strong examples of accounting policies in notes because they make the trigger logic explicit. Investors and auditors care deeply about the when and how of impairment.

Financial instruments and fair value: examples include hierarchy disclosures

For companies with derivatives, investments, or complex financing, the fair value policy note is a must-read.

Sample policy language – fair value and hierarchy (US GAAP):

Fair Value Measurement
The Company measures certain assets and liabilities at fair value in accordance with ASC 820, Fair Value Measurement. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The Company categorizes fair value measurements within a three-level hierarchy based on the observability of the inputs used in the valuation techniques: Level 1—quoted prices in active markets for identical assets or liabilities; Level 2—observable inputs other than quoted prices included in Level 1; and Level 3—unobservable inputs reflecting the Company’s own assumptions about the assumptions market participants would use.

The Company’s financial instruments measured at fair value on a recurring basis primarily include derivative instruments and available-for-sale debt securities. Valuation techniques and inputs used for each class of instrument are described in Note X.

If you’re building training material and want a clean example of accounting policies in notes that touches both recognition and measurement, this fair value disclosure is a solid template.

For deeper background on fair value concepts, the SEC’s Office of the Chief Accountant and the PCAOB often publish guidance and inspection reports at https://www.sec.gov and https://pcaobus.org.

Foreign currency translation: simple but important example of accounting policies in notes

Multinational companies must explain how they translate foreign operations and handle currency gains and losses.

Sample policy language – foreign currency (US GAAP/IFRS style):

Foreign Currency Translation
The functional currency of each of the Company’s foreign subsidiaries is generally the local currency. Assets and liabilities of foreign subsidiaries are translated into U.S. dollars using exchange rates in effect at the balance sheet date. Revenues and expenses are translated using average exchange rates for the period. Resulting translation adjustments are recorded as a separate component of accumulated other comprehensive income (loss) within shareholders’ equity.

Foreign currency transaction gains and losses, including those arising from the settlement of foreign currency-denominated transactions and from the remeasurement of monetary assets and liabilities denominated in currencies other than an entity’s functional currency, are recognized in other income (expense), net, in the consolidated statements of income.

This is another example of examples of accounting policies in notes where a few sentences can materially change the volatility of reported earnings vs. other comprehensive income.

Emerging 2024–2025 trends in examples of accounting policies in notes

If you compare older annual reports to recent 2024–2025 filings, you’ll notice several shifts in how companies present accounting policies:

• More cross-referencing and layering. Instead of dumping everything into one long policy note, companies increasingly summarize the policy and then refer to a separate note for detailed breakdowns, especially for revenue, leases, and fair value.
• Plain-English overlays. Regulators and investors have pushed for less jargon. Some of the best examples of accounting policies in notes now start with a short, narrative explanation (“We recognize revenue when…”) before quoting the standard.
• Climate and ESG-related impacts. While not always labeled “accounting policies,” many companies now explain how climate-related risks affect asset lives, impairment assumptions, and provisions. The SEC’s climate disclosure efforts and similar international initiatives are driving this. For context on climate and financial reporting, see resources from the U.S. EPA and related agencies at https://www.epa.gov.
• More disclosure of significant judgments. Under both US GAAP and IFRS, there’s growing emphasis on explaining judgments and estimates that sit behind the policies—useful lives, discount rates, standalone selling prices, and impairment triggers.

If you’re drafting or benchmarking, the best examples of accounting policies in notes in 2025 share three traits: they are specific to the business model, anchored in current standards, and explicit about where management judgment is doing the heavy lifting.

FAQ: short answers with practical examples

Q1. What are some common examples of accounting policies in notes to financial statements?
Common examples of accounting policies in notes include revenue recognition, inventory valuation, depreciation of property, plant, and equipment, lease accounting, impairment of long-lived assets and goodwill, income taxes (including deferred tax recognition), fair value measurement of financial instruments, and foreign currency translation. In more specialized sectors, you’ll also see policies for stock-based compensation, insurance reserves, or loan loss allowances.

Q2. Can you give an example of a revenue recognition policy for a retail business?
A typical example of a revenue policy for a retailer might say that revenue is recognized at the point of sale when control of the goods transfers to the customer, net of expected returns and sales taxes. For online sales, the note will usually specify whether control transfers on shipment or on delivery, and how the company estimates returns.

Q3. How detailed should examples of accounting policies in notes be for a private company?
Private companies don’t need the same volume of disclosure as SEC registrants, but the policies still need to be clear enough for users (lenders, investors, regulators) to understand how the numbers were produced. Short, specific descriptions—like the examples in this article—are usually better than long, copied-from-the-standard boilerplate.

Q4. Are companies required to update their accounting policy notes every year?
Yes, in the sense that the notes must reflect current policies and standards. If nothing material has changed, the examples of accounting policies in notes may stay largely the same. But when a new standard takes effect (think ASC 842 for leases or a change in revenue model), companies must update the wording and often add transition disclosures.

Q5. Where can I find real examples of accounting policies in notes from large companies?
For US public companies, the best source is the SEC’s EDGAR database at https://www.sec.gov/edgar. Open any recent Form 10-K, scroll to the notes, and look for the “Summary of Significant Accounting Policies” section. For academic discussion and teaching materials, universities such as Harvard often publish case studies and sample disclosures at sites like https://www.hbs.edu.

If you’re building or reviewing your own disclosures, use these real-world style examples of accounting policies in notes as a baseline, then tailor the language to your industry, standards framework (US GAAP vs IFRS), and actual business practices. Auditors and investors can smell copy-paste boilerplate a mile away; precise, business-specific wording is what builds credibility.