Reading and Interpreting Nordstrom’s Notes—Revenue Recognition The following excerpt is taken from Note 1 on page 33 of Nordstrom’s 2006 annual report:

Revenue Recognition We record revenues net of estimated returns and we exclude sales taxes. Our retail stores record revenue at the point of sale. Our catalog and online sales include shipping revenue and are recorded upon estimated delivery to the customer. We recognize revenue associated with our gift cards upon redemption of the gift card. As part of the normal sales cycle, we receive customer merchandise returns. To recognize the financial impact of sales returns, we estimate the amount of goods that will be returned and reduce sales and cost of sales accordingly. We utilize historical return patterns to estimate our expected returns. Our sales return reserves were $54,546 and

$51,172 at the end of 2006 and 2005.

Required 1. According to the note, when does Nordstrom recognize revenue from sales in its retail stores?

How does this differ from the way the company recognizes revenue from its catalog and online sales? Why would the way in which revenue from these two types of sales differ?

2. According to the note, how does Nordstrom recognize revenue associated with its gift cards?
Assume that you buy a gift card for a friend. What entry does Nordstrom make at the time you buy the card? What entry does Nordstrom make when your friend redeems the card?