Revenue Recognition Accounting Policy
Home Depot recognizes revenue, net of estimated returns and sales tax, at the time the customer takes possession of merchandise or receives services. The liability for sales returns is estimated based on historical return levels. When Home Depot receives payment from customers before the customer has taken possession of the merchandise or the service has been performed, the amount received is recorded as Deferred Revenue in the accompanying Consolidated Balance Sheets until the sale or service is complete. Home Depot also records Deferred Revenue for the sale of gift cards and recognizes this revenue upon the redemption of gift cards in Net Sales. Gift card breakage income is recognized based upon historical redemption patterns and represents the balance of gift cards for which Home Depot believes the likelihood of redemption by the customer is remote. During fiscal 2010, 2009 and 2008, Home Depot recognized $46 million, $40 million and $37 million, respectively, of gift card breakage income. This income is included in the accompanying Consolidated Statements of Earnings as a reduction in SG&A.
Services Revenue
Net Sales include services revenue generated through a variety of installation, home maintenance and professional service programs. In these programs, the customer selects and purchases material for a project and Home Depot provides or arranges professional installation. These programs are offered through Home Depot’s stores. Under certain programs, when Home Depot provides or arranges the installation of a project and the subcontractor provides material as part of the installation, both the material and labor are included in services revenue. Home Depot recognizes this revenue when the service for the customer is complete.
All payments received prior to the completion of services are recorded in Deferred Revenue in the accompanying Consolidated Balance Sheets. Services revenue was $2.7 billion, $2.6 billion and $3.1 billion for fiscal 2010, 2009 and 2008, respectively.
Source: Home Depot Inc., Annual Report
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