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UNDERWATER ENGINEERING SERVICES, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2017 AND 2016 Note 2 - Summary of Significant Accounting Policies (cont'd.) Accounts Receivable The Company carries its accounts receivable at cost Tess an allowance for doubtful accounts. The Company grants credit to commercial customers based upon analysis of their financial position and other factors. Consequently, an adverse change in those factors could affect the Company's estimate of its bad debts. Receivables more than 120 days old are considered past due. The Company estimates an allowance for doubtful accounts based on a percentage of net revenue, which reflects historical experience. Accounts receivable over 270 days outstanding are written off. In addition, accounts receivable are periodically evaluated for collectability based on past credit history with customers and their current financial condition. The Company does not accrue interest on past due receivables. Property and Equipment Property and equipment is stated at cost. The costs of additions and betterments are capitalized and expenditures for repairs and maintenance are expensed in the period incurred. When items of property and equipment are sold or retired, the related costs and accumulated depreciation and amortization are removed from the accounts and any gain or loss is included in income. Depreciation of property and equipment for financial statement purposes is computed on the straight-line method over the estimated useful lives of the assets, as follows: Barges 10 years Furniture, fixtures and equipment 3 to 10 years The Company reviews the carrying value of the long-lived assets to determine if facts and circumstances exist which would suggest that the assets might be impaired. If impairment is indicated, an adjustment will be made to reduce the carrying amount of the long-lived assets to their fair value. Based on the Company's review at December 31, 2017 and 2016, no impairment of long-lived assets was evident. Revenue and Fee Recognition Revenue is recognized on "cost plus" contracts as direct costs are incurred. Revenue on other contracts is generally accrued on the basis of the Company's estimates of the percentage of completion. Progress toward completion is measured on a contract -by -contract basis using direct labor costs incurred to date as compared with estimated total labor cost to completion. The Company includes revenue accrued on this basis in accounts receivable. Additionally, where contracts permit, deferred revenue includes amounts billed in advance of services performed, which will be recognized as related costs are incurred. Overhead and related expenses are charged to operations as incurred. A provision, if necessary, is made for anticipated contract losses when they become known. At December 31, 2017 and 2016, there were no such anticipated losses on contracts. At December 31, 2017 and 2016, deferred revenue was $94,368 and $71,515, respectively. In accordance with normal industry practice, the Company includes in current assets and current liabilities amounts relating to long-term contracts realizable and payable over a period in excess of one year. 8