Revenue Recognition Accounting Policy
Target's retail stores generally record revenue at the point of sale. Sales from Target's online business include shipping revenue and are recorded upon delivery to the guest. Total revenues do not include sales tax as Target considers itself a pass-through conduit for collecting and remitting sales taxes. Generally, guests may return merchandise within 90 days of purchase. Revenues are recognized net of expected returns, which Target estimates using historical return patterns as a percentage of sales. Commissions earned on sales generated by leased departments are included within sales and were $20 million in 2010, $18 million in 2009 and $19 million in 2008.
Revenue from gift card sales is recognized upon gift card redemption. Target's gift cards do not have expiration dates. Based on historical redemption rates, a small and relatively stable percentage of gift cards will never be redeemed, referred to as "breakage." Estimated breakage revenue is recognized over time in proportion to actual gift card redemptions and was not material in 2010, 2009 and 2008.
Credit card revenues are recognized according to the contractual provisions of each credit card agreement. When accounts are written off, uncollected finance charges and late fees are recorded as a reduction of credit card revenues. Target retail sales charged on credit cards totaled $3,455 million, $3,328 million and $3,948 million in 2010, 2009 and 2008, respectively.
Beginning April 2010, all new qualified credit card applicants receive the Target Card, and Target no longer issues the Target Visa to credit card applicants. Existing Target Visa cardholders are not affected. Beginning October 2010, guests receive a 5 percent discount on virtually all purchases at checkout every day when they use a REDcard at any Target store or on Target.com. Target's REDcards include the Target Credit Card, Target Visa Credit Card and Target Debit Card. This new REDcard Rewards program replaced the existing rewards program in which account holders received an initial 10 percent-off coupon for opening the account and earned points toward a 10 percent-off coupon on subsequent purchases. These changes are intended to simplify the program and to generate profitable incremental retail sales. The discounts associated with Target's REDcard Rewards program are included as reductions in sales in Target's Consolidated Statements of Operations and were $162 million in 2010, $94 million in 2009 and $114 million in 2008.
Source: Target Corp., Annual Report
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