Reading and Interpreting Nordstrom's Notes-Revenue Recognition The following excerpt is taken from Note 1 on page 40 of Nordstrom's Form 10-K for the fiscal year ended February 1, 2014: (amounts are in millions of dollars): Net Sales We recognize revenue from sales at our retail stores at the point of sale, net of estimated returns and excluding sales taxes. Revenue from our sales to customers shipped directly from our stores, website and catalog, which includes shipping revenue when applicable, is recognized upon estimated receipt by the customer. We estimate customer merchandise returns based on historical return patterns and reduce sales and cost of sales accordingly. The following excerpt on page 42 is from the same note: Gift Cards We recognize revenue from the sale of gift cards when the gift card is redeemed by the customer, or we recognize breakage income when the likelihood of redemption, based on historical experience, is deemed to be remote. 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 sales to customers shipped directly from its stores, its website and catalog sales? Why would the way in which revenue is recognized from these three types of sales differ? Revenue from retail stores is recognized . Revenue from sales to customers shipped directly from stores, as well as from website and catalog sales, is recorded as revenue The way in which the company recognizes revenue differs between sales made in stores and those made as direct shipments, website sales, and catalog orders because of the of the sale. When sales are made in a store, the customer is present to accept the merchandise and the sales transaction is complete at that time. Alternatively, the other types of sales require that an estimate be made of when the product will be delivered to the customer. 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? Reading and Interpreting Nordstrom's Notes-Revenue Recognition The following excerpt is taken from Note 1 on page 40 of Nordstrom's Form 10-K for the fiscal year ended February 1, 2014: (amounts are in millions of dollars): Net Sales We recognize revenue from sales at our retail stores at the point of sale, net of estimated returns and excluding sales taxes. Revenue from our sales to customers shipped directly from our stores, website and catalog, which includes shipping revenue when applicable, is recognized upon estimated receipt by the customer. We estimate customer merchandise returns based on historical return patterns and reduce sales and cost of sales accordingly. The following excerpt on page 42 is from the same note: Gift Cards We recognize revenue from the sale of gift cards when the gift card is redeemed by the customer, or we recognize breakage income when the likelihood of redemption, based on historical experience, is deemed to be remote. 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 sales to customers shipped directly from its stores, its website and catalog sales? Why would the way in which revenue is recognized from these three types of sales differ? Revenue from retail stores is recognized . Revenue from sales to customers shipped directly from stores, as well as from website and catalog sales, is recorded as revenue The way in which the company recognizes revenue differs between sales made in stores and those made as direct shipments, website sales, and catalog orders because of the of the sale. When sales are made in a store, the customer is present to accept the merchandise and the sales transaction is complete at that time. Alternatively, the other types of sales require that an estimate be made of when the product will be delivered to the customer. 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