PHILADELPHIA ENERGY SOLUTIONS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except unit and volume data)
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make
estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual amounts could differ from these estimates.
In recording transactions and balances resulting from business operations, the Company uses estimates based on the best information available.
Estimates are used for such items as plant depreciable lives, fair value of derivatives, environmental liabilities and liabilities for loss contingencies, among others. As better information becomes available or actual amounts are determinable, the
recorded estimates are revised.
The Company considers all highly liquid investments with a remaining maturity of three months or less at the time of purchase to be cash
equivalents. These cash equivalents consist principally of time deposits and money market investments.
Accounts receivable are carried at invoiced amounts. An allowance for doubtful accounts is established, if required, to report such amounts at
their estimated net realizable value. In estimating probable losses, management reviews accounts that are past due and determines if there are any known disputes. There was no allowance for doubtful accounts at December 31, 2015 or 2014.
Accounts receivable in the consolidated balance sheets comprises customer balances of $112,973 and other receivables of $57,707 at December
31, 2015 and customer balances of $166,455 and other receivables of $39,397 at December 31, 2014.
Included in other receivables,
mentioned above, at December 31, 2015 and 2014 are receivables relating to volume-based freight incentive rebates of $25,251 and $17,213, respectively.
carried at the lower of cost or market. The cost of crude oil and refined and intermediate product inventories is determined using the last-in, first-out (LIFO) method. Under the LIFO valuation method, the most recently incurred costs are charged to
cost of sales and inventories are valued at the earliest acquisition costs. The use of the LIFO inventory method may result in increases or decreases to cost of sales in years when inventory volumes decline and result in charging cost of sales with
LIFO inventory costs generated in prior periods. Also, in periods of rapidly declining prices, LIFO inventories may need to be written down to market value due to the higher costs assigned to LIFO layers in prior periods. An inventory write-down to
market value results in a non-cash accounting adjustment, decreasing the value of our inventories and increasing our cost of sales. Such charges are subject to reversal in subsequent periods, not to exceed LIFO cost, if prices recover.
The cost of materials and supplies inventories is determined using the average-cost method.
sales of refined products are recognized upon transfer of title to the customer based on the contractual terms of delivery.