UPS 2015 Annual Report Download - page 78

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF ACCOUNTING POLICIES
Basis of Financial Statements and Business Activities
The accompanying consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States (“GAAP”), and include the accounts of United Parcel Service, Inc., and all of its
consolidated subsidiaries (collectively “UPS” or the “Company”). All intercompany balances and transactions have been
eliminated.
UPS concentrates its operations in the field of transportation services, primarily domestic and international letter and
package delivery. Through our Supply Chain & Freight subsidiaries, we are also a global provider of specialized transportation,
logistics and financial services.
Use of Estimates
The preparation of our consolidated financial statements requires the use of estimates and assumptions that affect the
reported amounts of assets and liabilities, the reported amounts of revenues and expenses, and the disclosure of contingencies.
Estimates have been prepared on the basis of the most current and best information, and actual results could differ materially
from those estimates.
Revenue Recognition
U.S. Domestic and International Package Operations—Revenue is recognized upon delivery of a letter or package.
Forwarding and Logistics—Freight forwarding revenue and the expense related to the transportation of freight are
recognized at the time the services are completed. Truckload freight brokerage revenue and related transportation costs are
recognized upon delivery of the shipment by a third party carrier. Material management and distribution revenue is recognized
upon performance of the service provided. Customs brokerage revenue is recognized upon completing documents necessary for
customs entry purposes.
Freight—Revenue is recognized upon delivery of a less-than-truckload (“LTL”) or truckload (“TL”) shipment.
We utilize independent contractors and third-party carriers in the performance of some transportation services. In
situations where we act as principal party to the transaction, we recognize revenue on a gross basis; in circumstances where we
act as an agent, we recognize revenue net of the cost of the purchased transportation.
Financial Services—Income on loans and direct finance leases is recognized on the effective interest method. Accrual of
interest income is suspended at the earlier of the time at which collection of an account becomes doubtful or the account
becomes 90 days delinquent. Income on operating leases is recognized on the straight-line method over the terms of the
underlying leases.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid investments that are readily convertible into cash. We consider
securities with maturities of three months or less, when purchased, to be cash equivalents. The carrying amount of these
securities approximates fair value because of the short-term maturity of these instruments.
Investments
Marketable securities are either classified as trading or available-for-sale securities and are carried at fair value.
Unrealized gains and losses on trading securities are reported as investment income on the statements of consolidated income.
Unrealized gains and losses on available-for-sale securities are reported as accumulated other comprehensive income
(“AOCI”), a separate component of shareowners’ equity. The amortized cost of debt securities is adjusted for amortization of
premiums and accretion of discounts to maturity. Such amortization and accretion is included in investment income, along with
interest and dividends. The cost of securities sold is based on the specific identification method; realized gains and losses
resulting from such sales are included in investment income.