Crash Course in Accounting and Financial Statement Analysis, Second Edition

Assumption 3: Measurement and Units of Measure

Financial statements have limitations; they show only measurable activities of a corporation such as its quantifiable resources, its liabilities (money owed by it), amount of taxes facing it, and so forth. For example, financial statements exclude:

• Internally developed trademarks and patents (think of Coke, Microsoft, General Electric)—the value of these brands cannot be quantified or recorded.

• Employee and customer loyalty—their value is undeterminable.

Since financial statements show only measurable activities of a company, they must be reported in the national monetary unit: U.S. financial statements are reported in U.S. dollars (Exhibit 2.2); European financial statements now use the euro as a standard monetary unit.

Exhibit 2.2. Financial Statements of U.S. Companies are Reported in U.S. Dollars

CONSOLIDATED STATEMENT OF INCOME
			Note Reference Number	2005	2004	2003
				(millions of dollars)
Revenues and other income
	Sales and other operating revenue(1) (2)			$ 358,955	$ 291,252	$ 237,054
Income from equity affiliates		6	7,583	4,961	4,373
	Other income			4,142	1,822	5,311
Total revenues and other income	$ 370,680	$ 298,035	$ 246,738
Costs and other deductions
Crude oil and product purchases		$ 185,219	$ 139,224	$ 107,658
	Production and manufacturing expenses			26,819	23,225	21,260
Selling, general and administrative expenses		14,402	13,849	13,396
	Depreciation and depletion			10,253	9,767	9,047
Exploration expenses, including dry holes		964	1,098	1,010
	Interest expense