CDW 2006 Annual Report Download - page 46

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Accounts Receivable
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. As
previously discussed in this footnote, the allowance for doubtful accounts is our best estimate of
losses resulting from the inability of our customers to make required payments.
Merchandise Inventory
Inventory is valued at the lower of cost or market. Cost is determined on the first-in, first-out
method.
Property and Equipment
Property and equipment are stated at cost. We calculate depreciation using the straight-line
method over the useful lives of the assets. Leasehold improvements are amortized over the
shorter of their useful lives or the initial lease term. Expenditures for major renewals and
improvements that extend the useful life of property and equipment are capitalized. Expenditures
for maintenance and repairs are charged to expense as incurred. The following table shows
estimated useful lives of property and equipment:
Classification Estimated Useful Lives
Machinery and equipment 5 to 15 years
Building and leasehold improvements 5 to 25 years
Computer and data processing equipment 3 to 5 years
Computer software 3 to 5 years
Furniture and fixtures 5 to 10 years
Goodwill and Other Intangible Assets
We account for goodwill and other intangible assets in accordance with SFAS 142. Under SFAS
142, goodwill and indefinite-lived intangible assets are not amortized but are tested for impairment
on an annual basis or if impairment indicators exist. Intangible assets with definite lives are
amortized on a straight-line basis over their estimated useful lives, which range from 2-14 years.
Revenue Recognition
We record revenue from sales transactions when both risk of loss and title to products sold pass
to the customer. Our shipping terms dictate that the passage of title occurs upon receipt of
products by the customer. The majority of our revenue relates to physical products and are
recognized on a gross basis with the selling price to the customer recorded as net sales and the
acquisition cost of the product recorded as cost of sales. At the time of sale, we also record an
estimate for sales returns based on historical experience. Software assurance products, third
party services and extended warranties that we sell (for which we are not the primary obligor) are
recognized on a net basis in accordance with SEC Staff Accounting Bulletin No. 104, “Revenue
Recognition” and Emerging Issues Task Force 99-19, “Reporting Revenue Gross as a Principal
versus Net as an Agent.” Accordingly, such revenue is recognized in net sales either at the time
of sale or over the contract period, based on the nature of the contract, at the net amount
retained by us, with no cost of sales. Revenue from information technology consulting or
professional services is either recognized as incurred for services billed at an hourly rate or
recognized using the percentage of completion method for services provided at a fixed fee.
Revenue for data center services, including Internet connectivity, Web hosting, server co-
location, and managed services, is recognized over the period service is provided. In
accordance with EITF 00-10, “Accounting for Shipping and Handling Fees and Costs,” we record
freight billed to our customers as net sales and the related freight costs as a cost of sales.