UPS 2009 Annual Report Download - page 68

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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 financial statements 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.
The preparation of financial statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could
differ 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 performed. 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 classified as available-for-sale and are carried at fair value, with related unrealized
gains and losses reported, net of tax, as accumulated other comprehensive income (“AOCI”), a separate
component of shareowners’ equity. The amortized cost of debt securities is adjusted for amortization of
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