Costco Wholesale Corp. (COST)

Costco generally recognizes sales, which include gross shipping fees where applicable, net of returns, at the time the member takes possession of merchandise or receives services. When Costco collects payments from members prior to the transfer of ownership of merchandise or the performance of services, the amounts received are generally recorded as deferred sales, included in other current liabilities in the consolidated balance sheets, until the sale or service is completed. Costco reserves for estimated sales returns based on historical trends in merchandise returns and reduces sales and merchandise costs accordingly. The sales returns reserve is based on an estimate of the net realizable value of merchandise inventories excepted to be returned. Amounts collected from members for sales or value added taxes are recorded on a net basis.

Generally, when Costco is the primary obligor, is subject to inventory risk, has latitude in establishing prices and selecting suppliers, can influence product or service specifications, or has several but not all of these indicators, revenue is recorded on a gross basis. If Costco is not the primary obligor and does not possess other indicators of gross reporting as noted above, it records the net amounts earned, which is reflected in net sales.

Costco accounts for membership fee revenue, net of refunds, on a deferred basis, ratably over the one-year membership period. Costco's Executive members qualify for a 2% reward on qualified purchases (up to a maximum reward of approximately $1,000 per year), which can be redeemed only at Costco warehouses. Costco accounts for this reward as a reduction in sales. The sales reduction and corresponding liability (classified as accrued member rewards in the consolidated balance sheets) are computed after giving effect to the estimated impact of non-redemptions, based on historical data. The net reduction in sales was $1,281, $1,172, and $1,128 in 2017, 2016, and 2015, respectively.

Source: Costco Wholesale Corp., Annual Report

Costco Wholesale Corp., Income Statement, Revenues

USD $ in millions

	12 months ended	Sep 3, 2017	Aug 28, 2016	Aug 30, 2015	Aug 31, 2014	Sep 1, 2013	Sep 2, 2012
	United States Operations
	Canadian Operations
	Other International Operations
	Revenue

Source: Costco Wholesale Corp. Annual Reports