Facebook 2014 Annual Report Download - page 66

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FACEBOOK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Organization and Description of Business
Facebook was incorporated in Delaware in July 2004. Our mission is to give people the power to share and make the world more open and
connected. We build products that support our mission by creating value for people, marketers, and developers. We generate substantially all of our
revenue from advertising and from fees associated with our Payments infrastructure that enables users to purchase virtual and digital goods from
developers.
Basis of Presentation
We prepared the consolidated financial statements in accordance with U.S. generally accepted accounting principles (GAAP). The consolidated
financial statements include the accounts of Facebook, Inc. and its wholly owned subsidiaries. All intercompany balances and transactions have been
eliminated.
Use of Estimates
Conformity with GAAP requires the use of estimates and judgments that affect the reported amounts in the consolidated financial statements and
accompanying notes. These estimates form the basis for judgments we make about the carrying values of our assets and liabilities, which are not readily
apparent from other sources. We base our estimates and judgments on historical information and on various other assumptions that we believe are
reasonable under the circumstances. GAAP requires us to make estimates and judgments in several areas, including, but not limited to, those related to
revenue recognition, collectability of accounts receivable, contingent liabilities, fair value of financial instruments, fair value of acquired intangible
assets and goodwill, useful lives of intangible assets and property and equipment, and income taxes. These estimates are based on management's
knowledge about current events and expectations about actions we may undertake in the future. Actual results could differ materially from those
estimates.
Revenue Recognition
We generate substantially all of our revenue from advertising and payment processing fees. We recognize revenue once all of the following
criteria have been met:
Revenue for the years ended December 31, 2014 , 2013 , and 2012 consists of the following (in millions):
Advertising
Advertising revenue is generated by displaying ad products on the Facebook properties, including our mobile applications, and third-
party
affiliated websites or mobile applications. The arrangements are evidenced by either online acceptance of terms and conditions or contracts that stipulate
the types of advertising to be delivered, the timing and the pricing. Marketers pay for ad products either directly or through their relationships with
advertising agencies, based on the number of clicks made by our users, the number of actions taken by our users, or the number of impressions
delivered. The typical term of an advertising arrangement is approximately 30
days with billing generally occurring after the delivery of the
advertisement.
We recognize revenue from the delivery of click-based ads in the period in which a user clicks on the content, and action-based ads in the period
in which a user takes the action the marketer contracted for. We recognize revenue from the display of impression-
62
Note 1.
Summary of Significant Accounting Policies
•
persuasive evidence of an arrangement exists;
•
delivery of our obligations to our customer has occurred;
•
the price is fixed or determinable; and
•
collectability of the related receivable is reasonably assured.
Year Ended December 31,
2014
2013
2012
Advertising
$
11,492
$
6,986
$
4,279
Payments and other fees
974
886
810
Total revenue
$
12,466
$
7,872
$
5,089