K-Sea Transportation Partners LP (KSP)

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as incurred.  Estimated losses on contracts of affreightment and charters are accrued when such losses become evident.

                Use of Estimates.  The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the reporting period. The most significant estimates relate to depreciation of the vessels, liabilities incurred from workers’ compensation, commercial and other claims, the allowance for doubtful accounts and deferred income taxes.  Actual results could differ from these estimates.

                Concentrations of Credit Risk.  Financial instruments which potentially subject the Partnership to concentrations of credit risk are primarily cash and cash equivalents and trade accounts receivable. The Partnership maintains its cash and cash equivalents on deposit at a financial institution in amounts that, at times, may exceed insurable limits.

With respect to accounts receivable, the Partnership extends credit based upon an evaluation of a customer’s financial condition and generally does not require collateral.  The Partnership maintains an allowance for doubtful accounts for potential losses, totaling $782 and $690 at September 30, 2006 and June 30, 2006, respectively, and does not believe it is exposed to concentrations of credit risk that are likely to have a material adverse effect on its financial position, results of operations or cash flows.

The Company earns revenue under contracts of affreightment (moving cargo), voyage charters, and time charters. For contracts of affreightment and voyage charters, revenue is recognized ratably based upon the relative transit time for individual voyages in each period. Although contracts of affreightment and certain contracts for voyage charters may be effective for a period in excess of one year, revenue is recognized over the transit time of individual voyages, which is generally less than ten days in duration. For time charters, revenue is recognized ratably over the contract period. Estimated losses on contracts of affreightment and charters are accrued when such losses become evident.

        The Company earns revenue under contracts of affreightment (moving cargo), voyage charters, and time charters. For contracts of affreightment and voyage charters, revenue is recognized ratably based upon the relative transit time for individual voyages in each period. Although contracts of affreightment and certain contracts for voyage charters may be effective for a period in excess of one year, revenue is recognized over the transit time of individual voyages, which are generally less than ten days in duration. For time charters, revenue is recognized ratably over the contract period. Estimated losses on contracts of affreightment and charters are accrued when such losses become evident.

We earn revenue under contracts of affreightment, voyage charters, time charters and bareboat charters.  For contracts of affreightment and voyage charters, revenue is recognized based upon the relative transit time in each period, with expenses recognized as incurred.  Although contracts of affreightment and certain contracts for voyage charters may be effective for a period in excess of one year, revenue is recognized over the transit time of individual voyages, which are generally less than ten days in duration.  For time charters and bareboat charters, revenue is recognized ratably over the contract period, with expenses recognized as incurred. Estimated losses on contracts of affreightment and charters are accrued when such losses become evident.