Amazon.com 2001 Annual Report Download - page 56

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AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1—DESCRIPTION OF BUSINESS AND ACCOUNTING POLICIES
Description of Business
Amazon.com, Inc. commenced operations on the World Wide Web in July 1995. The Company sells
products worldwide, with its principal geographies in North America, Europe and Asia. The Company and its
sellers list millions of unique items in categories such as books, music, DVDs, videos, electronics, computers,
camera and photo items, software, computer and video games, cell phones and service, tools and hardware,
outdoor living items, kitchen and houseware products, toys, baby and baby registry, travel services and magazine
subscriptions. Through its Amazon Marketplace, Auctions and zShops services, businesses and individuals can
sell virtually any product to Amazon.com’s customer base, and with Amazon.com Payments, sellers are able to
accept credit card transactions in addition to other methods of payment. The Company operates a U.S.-based
Web site, www.amazon.com, and four internationally-focused Web sites: www.amazon.co.uk,www.amazon.de,
www.amazon.fr and www.amazon.co.jp.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned
subsidiaries. All significant intercompany balances and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the
United States requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Estimates are used for, but not limited to,
inventory allowances, depreciation, amortization, sales returns, the accounting for doubtful accounts, unearned
revenue, sub-lease income offsetting lease commitments, valuation of investments, taxes and contingencies.
Actual results could differ from those estimates.
Business Combinations
For business combinations that have been accounted for under the purchase method of accounting, the
Company includes the results of operations of the acquired business from the date of acquisition. Net assets of
the companies acquired are recorded at their fair value at the date of acquisition. The excess of the purchase price
over the fair value of tangible and identifiable intangible net assets acquired is included in goodwill on the
accompanying consolidated balance sheets.
Effective July 1, 2001, pooling-of-interest accounting is no longer allowed under accounting principles
generally accepted in the United States. No business combinations were accounted for under this method during
2001, 2000 or 1999.
Cash and Cash Equivalents
The Company classifies all highly liquid instruments with an original maturity of three months or less at the
time of purchase as cash equivalents.
Inventories
Inventories, consisting of products available for sale, are recorded using the specific-identification method
and valued at the lower of cost or market value.
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