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De La Hoz Builders, Inc. Notes to Financial Statements Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Allowance for Doubtful Accounts Management evaluates its receivables on an ongoing basis by analyzing customer relationships and previous payment histories. The allowance for doubtful accounts is management's best estimate of the amount of probable credit losses in the existing accounts based on current market conditions. Historically, losses on uncollectible accounts have been within management's expectations. The allowance for doubtful accounts is reviewed on a periodic basis to ensure there is sufficient reserve to cover any potential write-offs. When receivables are considered uncollectible, they are charged against the allowance for doubtful accounts. At December 31, 2020, there was no allowance for doubtful accounts as management considers all receivables collectible. Prepaid Expenses Payments made to vendors before product or services are received are accounted for as prepaid expenses. Property and Equipment Property and equipment purchases are capitalized and recorded at cost.. Depreciation is recognized on the straight line method over the estimated useful lives of the assets, which range from 5 to 27.5 years. Depreciation expense for the year ended December 31, 2020 was $33,047. A summary of property and equipment at December 31, 2020 as follows: Depreciable Category 2020 Lives Land $ 42,000 Building 172,522 27.5 years Machinery and equipment 251,602 5-10 years Total property and equipment 466,124 Less: accumulated depreciation (203,499) 25 Revenues from Contracts with Customers and Disaggregation of Revenues The Company is involved in general contracting for commercial and governmental customers. Therefore, the Company's viability is dependent on the strength of the construction industry, primarily in the Federal Government area and the Company's ability to collect on its contracts. The majority of the Company's contracts in. 2020 contain terms that state a fixed amount of consideration. The remainder of customer contracts contain terms based on standard hourly rates of the employees assigned to the contract in addition to other contract costs. Each contract type presents advantages and disadvantages. Typically, fixed-price contracts involve more risk; however, they offer the opportunity for additional profits based on potential change orders and incentives. Cost -based contracts involve Fess risk but often are less profitable. -7-