Remember that creating financial statements is like the scorecards of businesses, and we accountants are responsible for following the rules (GAAP) and creating an accurate picture of how the game is going. In addition, you are learning to read these complicated scorecards.
For instance, here is the income statement for ExxonMobil for the fiscal year ended December 31, 2019:
| Note Reference Number | 2019 | 2018 | 2017 | |
|---|---|---|---|---|
| Subcategory, Revenues and other income | ||||
| Sales and other operating revenue | 255,583 | 279,332 | 237,162 | |
| Income from equity affiliates | 7 | 5,441 | 7,355 | 5,380 |
| Other income | 3,914 | 3,525 | 1,821 | |
| Total revenues and other income | Single Line264,938Single Line | Single Line290,212Single Line | Single Line244,363Single Line | |
| Subcategory, Costs and other deductions | ||||
| Crude oil and product purchases | 143,801 | 156,172 | 128,217 | |
| Production and manufacturing expenses | 36,826 | 36,682 | 32,690 | |
| Selling, general, and administrative expenses | 11,398 | 11,480 | 10,649 | |
| Depreciation and depletion | 9 | 18,998 | 18,745 | 19,893 |
| Exploration expenses, including dry holes | 1,269 | 1,466 | 1,790 | |
| Non-service pension ad postretirement benefit expense | 17 | 1,235 | 1,285 | 1,745 |
| Interest expense | 830 | 766 | 601 | |
| Other taxes and duties | 19 | 30,525 | 32,663 | 30,104 |
| Total costs and other deductions | Single Line244,882Single Line | Single Line259,259Single Line | Single Line225,689Single Line | |
| Subcategory, Income before income taxes | 20,056 | 30,953 | 18,674 | |
| Income taxes | 19 | 5,282 | 9,532 | (1,174) |
| Subcategory, Net income including noncontrolling interests | Single Line14,774 | Single Line21,421 | Single Line19,848 | |
| Net income attributable to noncontrolling interests | 434 | 581 | 138 | |
| Net income attributable to ExxonMobil | Single Line14,340Double Line | Single Line20,840Double Line | Single Line19,710Double Line |
Already, you can see this is a consolidated statement, which means ExxonMobil over the years has purchased controlling interests in other companies and is rolling those financial results into one all-inclusive statement.
At the bottom of the income statement, you’ll see the company has subtracted a portion of income from the consolidated subsidiaries that is attributable to other owners—the noncontrolling interests. You can also see a line for depreciation and depletion—two concepts that might not have meant anything to you until recently.
On the balance sheet, you can see a line for investments placed between current assets and PP&E, indicating those are available-for-sale investments being held long-term, along with long-term notes receivable, and you can see PP&E is being reported “net” of accumulated depreciation and depletion.
| Note Reference Number | Dec. 31 2019 | Dec. 31 2018 | |
|---|---|---|---|
| Subcategory, Assets | |||
| Subcategory, Current assets | |||
| Cash and cash equivalents | 3,089 | 3,042 | |
| Notes and accounts receivable, less estimated doubtful amounts | 6 | 26,966 | 24,701 |
| Subcategory, Inventories | |||
| Crude oil, products and merchandise | 3 | 14,010 | 14,803 |
| Materials and supplies | 4,518 | 4,155 | |
| Other current assets | 1,469 | 1,272 | |
| Total current assets | Single Line50,52 | Single Line47,973 | |
| Investments, advances, and long-term receivables | 8 | 43,164 | 40,790 |
| Property, plant and equipment, at cost, less accumulated depreciation and depletion | 9 | 253,018 | 247,101 |
| Other assets, including intangibles, net | 16,363 | 10,332 | |
| Total assets | Single Line362,597Double Line | Single Line346,196Double Line |
You would now know to scroll down to the footnotes to find out more information about accounting policies such as the methods used for depreciation and depletion, and details such as R&D expenditures and this breakdown of Investments:
Long-term receivables and miscellaneous, net of reserves of $5,643 million and $5,471 million5,1415,590
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | ||
|---|---|---|
| 8. Investments, Advances, and Long-Term Receivables | ||
| Description | Dec. 31, 2019 | Dec. 31, 2018 |
| (millions of dollars) | ||
| Subcategory, Equity method company investments and advances | ||
| Investments | 29,291 | 26,382 |
| Advances | 8,542 | 8,608 |
| Total equity method company investments and advances | Single line 37,833 |
Single line 34,990 |
| Equity securities carried at fair value and other investments at adjusted cost basis | 190 | 210 |
| Total | Single line 43,164Double line |
Single line 40,790Double line |
You can now recognize the term “equity method” and you may also make the connection that the “reserves” mentioned in connection with long-term receivables is an allowance for uncollectible accounts, and “net” means that allowance has been subtracted from the “gross” amount which would be the maturity value of all the notes.
In other words, as you continue to explore these accounting concepts, more and more layers of the financial statement onion are being peeled back, and you are gaining more and more context with which to understand the layers to come.