Paychex 2014 Annual Report Download - page 60

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PAYCHEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Basis of presentation: The consolidated financial statements include the accounts of Paychex, Inc. and its
wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
The Company has evaluated subsequent events for potential recognition and/or disclosure through the date of
issuance of these financial statements.
Cash and cash equivalents: Cash and cash equivalents consist of available cash, money market securities,
and other investments with a maturity of three months or less at acquisition.
Accounts receivable, net of allowance for doubtful accounts: Accounts receivable balances are shown on
the Consolidated Balance Sheets net of the allowance for doubtful accounts of $1.5 million as of May 31, 2014
and $1.0 million as of May 31, 2013. Accounts receivable are written off and charged against the allowance for
doubtful accounts when the Company has exhausted all collection efforts without success. No single client had a
material impact on total accounts receivable, service revenue, or results of operations.
Funds held for clients and corporate investments: Marketable securities included in funds held for
clients and corporate investments consist primarily of securities classified as available-for-sale and are recorded
at fair value obtained from an independent pricing service. The funds held for clients portfolio also includes cash,
money market securities, and short-term investments. Unrealized gains and losses, net of applicable income
taxes, are reported as other comprehensive income in the Consolidated Statements of Income and Comprehensive
Income. Realized gains and losses on the sale of available-for-sale securities are determined by specific
identification of the cost basis of each security. On the Consolidated Statements of Income and Comprehensive
Income, realized gains and losses from their respective portfolios are included in interest on funds held for clients
and investment income, net.
Concentrations: Substantially all of the Company’s deposited cash is maintained at large well-capitalized
(as defined by their regulators) financial institutions. These deposits may exceed the amount of any insurance
provided. All of the Company’s deliverable securities, primarily municipal bond securities, are held in custody
with certain of the aforementioned financial institutions, for which that institution bears the risk of custodial loss.
Non-deliverable securities, primarily time deposits and money market funds, are restricted to well-capitalized
financial institutions.
Property and equipment, net of accumulated depreciation: Property and equipment is stated at cost, less
accumulated depreciation. Depreciation is based on the estimated useful lives of property and equipment using
the straight-line method. The estimated useful lives of depreciable assets are generally:
Category Depreciable life
Buildings and improvements Ten to 35 years or the remaining life, whichever is shorter
Data processing equipment Three to five years
Furniture, fixtures, and equipment Three to seven years
Leasehold improvements Ten years or the life of the lease, whichever is shorter
Normal and recurring repairs and maintenance costs are charged to expense as incurred. The Company
reviews the carrying value of property and equipment for impairment when events or changes in circumstances
indicate that the carrying value of such assets may not be recoverable.
Software development and enhancements: Expenditures for software purchases and software developed
for internal use are capitalized and depreciated on a straight-line basis over the estimated useful lives, which are
generally three to five years. Software developed as part of the Company’s main processing platform is
depreciated over fifteen years. For software developed for internal use, certain costs are capitalized, including
external direct costs of materials and services associated with developing or obtaining the software, and payroll
and payroll-related costs for employees who are directly associated with internal-use software projects.
Capitalization of these costs ceases no later than the point at which the project is substantially complete and
ready for its intended use. Costs associated with preliminary project stage activities, training, maintenance, and
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