Amazon.com, Inc. (NASDAQ:AMZN) says that new accounting rules that go into effect next year will result in changes on when it recognizes sales of its tablets, e-readers, gift cards, and more.
The Seattle-based e-commerce behemoth commented recently on the new rules from the Financial Accounting Standards Board, or FASB, which will soon begin enforcing the Accounting Standards Update (ASU) called ASC 606. MarketWatch has the details on how Amazon will handle the changes:
“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,” Amazon AMZN, +1.16% wrote in its July 28 filing.
“These timing changes will include Amazon-branded electronic devices sold through retailers, which will be recognized upon sale to the retailer rather than to end customers, and the unredeemed portion of our gift cards, which we will begin to recognize over the expected customer redemption period, which is substantially within nine months, rather than waiting until gift cards expire or when the likelihood of redemption becomes remote, generally two years from the date of issuance. In addition, certain advertising services will be classified as revenue rather than a reduction in cost of sales.”
ASC 606 is aimed at bringing U.S. companies’ accounting methods up to par with modern standards established in Europe and elsewhere. Public companies are required to adhere to the new guidelines by the end of 2018, while private firms get an extra year to get their books in order.
Amazon says it will start using the new rules beginning in Q1 2018, with a cumulative adjustment to retained earnings. Gift cards are subject to the largest change, “which will be recognized over the expected redemption period of the gift card under the new standard rather than waiting until the likelihood of redemption becomes remote or waiting for the gift card to expire,” the company said.
Amazon.com, Inc. shares closed at $967.99 on Friday, up $11.07 (+1.16%). Year-to-date, AMZN has gained 29.09%, versus a 10.22% rise in the benchmark S&P 500 index during the same period.