Big Lots 2007 Annual Report Download - page 134

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BIG LOTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 1 — Summary of Significant Accounting Policies (Continued)
Cash and Cash Equivalents
Cash and cash equivalents primarily consist of amounts on deposit with financial institutions, outstanding
checks, credit and debit card receivables, and highly liquid investments, including money market funds, which
are unrestricted to withdrawal or use and which have an original maturity of three months or less. We review
cash and cash equivalent balances on a bank by bank basis in order to identify book overdrafts. Book overdrafts
occur when the amount of outstanding checks exceed the cash deposited at a given bank. We reclassify book
overdrafts, if any, to accounts payable on our consolidated balance sheets. Amounts due from banks for credit
and debit card transactions are typically settled in less than seven days. Amounts due from banks for these
transactions totaled $21.9 million and $19.7 million at February 2, 2008 and February 3, 2007, respectively. Cash
equivalents are stated at cost, which approximates market value.
Investments
Investment securities are classified as available-for-sale, held-to-maturity, or trading at the date of purchase
with the applicable accounting treatment followed for each category. Investments are recorded at fair value as
either current assets or non-current assets based on the stated maturity or our plans to either hold or sell the
investment. Unrealized holding gains and losses on trading securities are recognized in earnings. Unrealized
holding gains and losses on available-for-sale securities are recognized in other comprehensive income,
until realized. We did not own any held-to-maturity or available-for-sale securities as of February 2, 2008 or
February 3, 2007.
Merchandise Inventories
Merchandise inventories are valued at the lower of cost or market using the average cost retail inventory method.
Cost includes any applicable in-bound shipping and handling costs associated with the receipt of merchandise
into our distribution centers (See Selling and Administrative Expenses below for a discussion of outbound
shipping and handling costs to our stores). Market is determined based on the estimated net realizable value,
which generally is the merchandise selling price. Under the average cost retail inventory method, inventory is
segregated into departments of merchandise having similar characteristics at its current retail selling value.
Current retail selling values are converted to a cost basis by applying an average cost factor to each specific
merchandise department’s retail selling value. Cost factors represent the average cost-to-retail ratio computed
using beginning inventory and all fiscal year-to-date purchase activity specific to each merchandise department.
Payments Received from Vendors
Payments received from vendors relate primarily to rebates and reimbursement for markdowns and are
recognized in our consolidated statements of operations as a reduction to cost of sales when the related
inventory is sold.
Store Supplies
When opening a new store, a portion of the initial shipment of supplies (including primarily display materials,
signage, security-related items, and miscellaneous store supplies) is capitalized at the store opening date.
Subsequent replenishments of these store supplies are expensed. Capitalized store supplies are adjusted
as appropriate for changes in estimated quantities or costs and are included in other current assets in our
consolidated balance sheets.