Amazon.com 2013 Annual Report Download - page 55

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We provide Fulfillment by Amazon services in connection with certain of our sellers’ programs. Third-party sellers
maintain ownership of their inventory, regardless of whether fulfillment is provided by us or the third-party sellers, and
therefore these products are not included in our inventories.
Accounts Receivable, Net and Other
Included in “Accounts receivable, net and other” on our consolidated balance sheets are amounts primarily related to
vendor and customer receivables. As of December 31, 2013 and 2012, vendor receivables, net, were $1.3 billion and $1.1
billion, and customer receivables, net, were $1.7 billion and $1.5 billion.
Allowance for Doubtful Accounts
We estimate losses on receivables based on known troubled accounts and historical experience of losses incurred.
Receivables are considered impaired and written-off when it is probable that all contractual payments due will not be collected
in accordance with the terms of the agreement. The allowance for doubtful accounts was $153 million, $116 million, and $82
million as of December 31, 2013, 2012, and 2011. Additions to the allowance were $172 million, $136 million, and $87
million, and deductions to the allowance were $135 million, $102 million, and $82 million as of December 31, 2013, 2012, and
2011.
Internal-use Software and Website Development
Costs incurred to develop software for internal use and our websites are capitalized and amortized over the estimated
useful life of the software. Costs related to design or maintenance of internal-use software and website development are
expensed as incurred. For the years ended 2013, 2012, and 2011, we capitalized $581 million (including $87 million of stock-
based compensation), $454 million (including $74 million of stock-based compensation), and $307 million (including $51
million of stock-based compensation) of costs associated with internal-use software and website development. Amortization of
previously capitalized amounts was $451 million, $327 million, and $236 million for 2013, 2012, and 2011.
Property and Equipment, Net
Property and equipment are stated at cost less accumulated depreciation. Property includes buildings and land that we
own, along with property we have acquired under build-to-suit, financing, and capital lease arrangements. Equipment includes
assets such as furniture and fixtures, heavy equipment, servers and networking equipment, and internal-use software and
website development. Depreciation is recorded on a straight-line basis over the estimated useful lives of the assets (generally
the lesser of 40 years or the remaining life of the underlying building, two years for assets such as internal-use software, three
years for our servers, five years for networking equipment, five years for furniture and fixtures, and ten years for heavy
equipment). Depreciation expense is classified within the corresponding operating expense categories on our consolidated
statements of operations.
Leases and Asset Retirement Obligations
We categorize leases at their inception as either operating or capital leases. On certain of our lease agreements, we may
receive rent holidays and other incentives. We recognize lease costs on a straight-line basis without regard to deferred payment
terms, such as rent holidays that defer the commencement date of required payments. Additionally, incentives we receive are
treated as a reduction of our costs over the term of the agreement. Leasehold improvements are capitalized at cost and
amortized over the lesser of their expected useful life or the non-cancellable term of the lease.
We establish assets and liabilities for the estimated construction costs incurred under build-to-suit lease arrangements to
the extent we are involved in the construction of structural improvements or take construction risk prior to commencement of a
lease. Upon occupancy of facilities under build-to-suit leases, we assess whether these arrangements qualify for sales
recognition under the sale-leaseback accounting guidance. If we continue to be the deemed owner, the facilities are accounted
for as financing leases.
We establish assets and liabilities for the present value of estimated future costs to retire long-lived assets at the
termination or expiration of a lease. Such assets are depreciated over the lease period into operating expense, and the recorded
liabilities are accreted to the future value of the estimated retirement costs.
Goodwill
We evaluate goodwill for impairment annually or more frequently when an event occurs or circumstances change that
indicate that the carrying value may not be recoverable. We test goodwill for impairment by first comparing the book value of
net assets to the fair value of the reporting units. If the fair value is determined to be less than the book value or qualitative