Accounting Rule Change Will Impact How Amazon Recognizes Gadget Sales

Amazon has revealed that a new accounting rule which is supposed to become applicable in 2018 will change the gross sales amount of electronic devices when the online retailer recognizes the sale of the electronic devices it sells. The new accounting rule which is known as ASC 606 will have an impact on restaurant chains and retailers. Its impact will also extend to credit card rewards, credit vouchers and loyalty programs.

“As we evaluate the impact of this ASU, the more significant changes that we have identified relate to the timing of when we recognize revenue and the gross amount of revenue that we present,” said Amazon in a filing.

Q1 2018

According to Amazon the giant e-commerce company will adopt the rules in next year’s first quarter. Instead of a full restatement for prior periods the retained earnings will be cumulatively adjusted. Walmart, a brick and mortar retailer, has on the other hand indicated that it will adopt the rules beginning February 1 next year while coffee chain Starbucks is expected to adopt the rules in 2019 in the first quarter.

Besides Amazon, other retailers have been doing an evaluation of how the accounting standards update will impact them especially with regards to when they can claim revenues from sources such as loyalty programs, gift cards and other business aspects. In the case of Amazon the value of unredeemed gift cards towards the end of last year was $2.4 billion.

Promotional programs and loyalty programs

Nordstrom has indicated that the biggest impact that the accounting rule change will have is on sales attributable to loyalty program benefits and this includes alterations and points which instead of being accounted for will be deferred. Kohl’s Corp has indicated that the rule will change how sales returns are accounted for. Other aspects of the business that Kohl’s Corp expects to be impacted by the change include certain promotional programs and loyalty programs.

Another brick and mortar retailer, Target Corp, expects to start the adoption of the new accounting rule in 2018’s first quarter. Retailers such as Ultra Beauty Inc, Urban Outfitters and Gap have already addressed the accounting rule change but they are yet to report. Besides credit vouchers and gift cards, Gap expects the rule change to affect when sales of items that have been shipped from a store or distribution center are recognized. Bloomin’ Brands Inc, on the other hand, said the rule change would impact how advertising fees that franchisees get charged are accounted for.

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