Home Depot Inc. (HD)
Analysis of Revenues
Accounting Policy on Revenue Recognition
On January 29, 2018, Home Depot adopted ASU No. 2014-09 using the modified retrospective transition method which requires that Home Depot recognizes revenue differently pre- and post-adoption.
Fiscal 2018 and Subsequent Periods
Home Depot recognizes revenue, net of expected returns and sales tax, at the time the customer takes possession of merchandise or when a service is performed. The liability for sales returns, including the impact to gross profit, is estimated based on historical return levels and recognized at the transaction price. Home Depot also recognizes a return asset, and corresponding adjustment to cost of sales, for the right to recover the goods returned by the customer, measured at the former carrying amount of the goods, less any expected recovery cost. At each financial reporting date, Home Depot assesses the estimates of expected returns, refund liabilities, and return assets.
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 for professional installation. These programs are offered through Home Depot’s stores and in-home sales programs. Under certain programs, when Home Depot provides or arranges for 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, which is not materially different from recognizing the revenue over the service period as the substantial majority of the services are completed within one week.
For product sold in stores or online, payment is typically due at the point of sale. For services, payment in full is due upon completion of the job. 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 until the sale or service is complete. Such performance obligations are part of contracts with expected original durations of three months or less. Home Depot further records deferred revenue for the sale of gift cards and recognizes the associated revenue upon the redemption of those gift cards in net sales. Gift card breakage income, which is Home Depot’s estimate of the non-redeemed gift card balance, was immaterial in fiscal 2018.
Home Depot also has agreements with third-party service providers who directly extend credit to customers and manage the PLCC program. Deferred interest charges incurred for Home Depot’s deferred financing programs offered to these customers, interchange fees charged to Home Depot for their use of the cards, and any profit sharing with the third-party service providers are included in net sales.
Source: 10-K (filing date: 2019-03-28).
Revenues as Reported
Home Depot Inc., Income Statement, Revenues
US$ in millions
Based on: 10-K (filing date: 2019-03-28), 10-K (filing date: 2018-03-22), 10-K (filing date: 2017-03-23), 10-K (filing date: 2016-03-24), 10-K (filing date: 2015-03-26), 10-K (filing date: 2014-03-27).
|Net sales||Amount of revenue recognized from goods sold, services rendered, insurance premiums, or other activities that constitute an earning process. Includes, but is not limited to, investment and interest income before deduction of interest expense when recognized as a component of revenue, and sales and trading gain (loss).||Home Depot Inc.’s net sales increased from 2017 to 2018 and from 2018 to 2019.|