Amazon.com 2015 Annual Report Download - page 57

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Cash and Cash Equivalents
We classify all highly liquid instruments with an original maturity of three months or less as cash equivalents.
Inventories
Inventories, consisting of products available for sale, are primarily accounted for using the first-in, first-out (“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 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.
We also purchase electronic device components from a variety of suppliers and use several contract manufacturers to
provide manufacturing services for our products. During the normal course of business, in order to manage manufacturing lead
times and help ensure adequate component supply, we enter into agreements with contract manufacturers and suppliers. A
portion of our reported purchase commitments arising from these agreements consists of firm, non-cancellable commitments.
These commitments are based on forecasted customer demand. If we reduce these commitments, we may incur additional
costs.
Accounts Receivable, Net and Other
Included in “Accounts receivable, net and other” on our consolidated balance sheets are amounts primarily related to
customer and seller receivables and vendor receivables. As of December 31, 2015 and 2014, customer and seller receivables,
net, were $2.6 billion and $1.9 billion, and vendor receivables, net, were $1.8 billion and $1.4 billion.
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 $189 million, $190 million, and $153
million as of December 31, 2015, 2014, and 2013. Additions to the allowance were $289 million, $225 million, and $172
million, and deductions to the allowance were $290 million, $188 million, and $135 million in 2015, 2014, and 2013.
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 2015, 2014, and 2013, we capitalized $642 million (including $114 million of stock-
based compensation), $641 million (including $104 million of stock-based compensation), and $581 million (including $87
million of stock-based compensation) of costs associated with internal-use software and website development. Amortization of
previously capitalized amounts was $635 million, $559 million, and $451 million for 2015, 2014, and 2013.
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