(Dollar and Share Amounts in Thousands except Per Share Information and as Otherwise Noted)  The consolidated financial statements include the accounts of Fastenal Company and its wholly-owned  subsidiaries (collectively referred to as the Company). All material intercompany balances and transactions  have been eliminated in consolidation.  Net sales include products, services, and freight and handling costs billed; net of any related sales  incentives paid to customers and net of an estimate for product returns. The Company recognizes revenue  when persuasive evidence of an arrangement exists, title and risk of ownership have passed, the sales price  is fixed or determinable, and collectibility is probable. Generally, these criteria are met at the time the  product is shipped to, or picked up by, the customer. The Company recognizes billings for freight and  handling charges at the time the products are shipped to, or picked up by, the customer. The Company  recognizes services at the time the service is provided to the customer. The Company estimates product  returns based on historical return rates. Accounts receivable are stated at their estimated net realizable  value. All financial instruments are carried at amounts that approximate estimated fair value.  For purposes of the Consolidated Statements of Cash Flows, the Company considers all highly-liquid debt  instruments purchased with original maturities of three months or less to be cash equivalents.  Inventories, consisting of merchandise held for resale, are stated at the lower of cost (first in, first out  method) or market.  Marketable securities as of December 31, 2004 and 2003 consist of debt securities. The Company classifies  its debt securities as available-for-sale. Available-for-sale securities are recorded at fair value based on  current market value. Unrealized holding gains and losses on available-for-sale securities are excluded  from earnings, but are included in comprehensive income, and are reported as a separate component of  stockholders’ equity until realized, provided that a decline in the market value of any available-for-sale  security below cost that is deemed other than temporary is charged to earnings resulting in the  establishment of a new cost basis for the security. Property and equipment are stated at cost. Depreciation on buildings and equipment is provided for using  the straight line method over the anticipated economic useful lives of the related property.  2004 ANNUAL REPORT – PAGE 23  Property and Equipment Marketable Securities Inventories Cash Equivalents Financial Instruments Revenue Recognition and Accounts Receivable Principles of Consolidation 1  Summary of Significant Accounting Policies 2004 Notes to Consolidated Financial Statements