Amazon.com 2011 Annual Report Download - page 49

Cash and Cash Equivalents
We classify 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 primarily accounted for using the FIFO method,
and are valued at the lower of cost or market value. This valuation requires us to make judgments, based on
currently-available information, about the likely method of disposition, such as through sales to individual
customers, returns to product vendors, or liquidations, and expected recoverable values of each disposition
category.
We provide fulfillment-related 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. At December 31, 2011 and 2010, vendor receivables, net, were $934
million and $763 million, and customer receivables, net, were $1.2 billion and $561 million.
Allowance for Doubtful Accounts
We estimate losses on receivables based on known troubled accounts and historical experience of losses
incurred. The allowance for doubtful accounts was $82 million and $77 million at December 31, 2011 and 2010.
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 2011, 2010, and 2009, we capitalized $307 million
(including $51 million of stock-based compensation), $213 million (including $38 million of stock-based
compensation), and $187 million (including $35 million of stock-based compensation) of costs associated with
internal-use software and website development. Amortization of previously capitalized amounts was $236
million, $184 million, and $172 million for 2011, 2010, and 2009.
Depreciation of Fixed Assets
Fixed assets include assets such as furniture and fixtures, heavy equipment, servers and networking
equipment, internal-use software and website development. Depreciation is recorded on a straight-line basis over
the estimated useful lives of the assets (generally two years for assets such as internal-use software, three years
for our servers and 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
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