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Analysis of Revenues
Revenue Recognition Accounting Policy
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
Revenues as Reported
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|
|Other International Operations|
Source: Costco Wholesale Corp. Annual Reports
|Revenue||Aggregate revenue recognized during the period (derived from goods sold, services rendered, insurance premiums, or other activities that constitute an entity's earning process). For financial services companies, also includes investment and interest income, and sales and trading gains.||Costco Wholesale Corp.'s revenue increased from 2015 to 2016 and from 2016 to 2017.|