Rosetta Stone 2009 Annual Report Download - page 85

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Table of Contents
ROSETTA STONE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
recognized ratably over the term of the online licensing arrangement, assuming all revenue recognition criteria have been met. Accounts receivable and
deferred revenue are recorded at the time a customer enters into a binding subscription agreement and the subscription services are made available to the
customer. In connection with packaged software product sales and online software subscriptions, technical support is provided to customers, including
customers of resellers, at no additional charge. As the fee for technical support is included in the initial licensing fee, the technical support and services are
generally provided within one year, the estimated cost of providing such support is deemed insignificant and no unspecified upgrades/enhancements are
offered, technical support revenues are recognized together with the software product and license revenue. Costs associated with the technical support are
accrued at the time of sale.
Revenue from the sale of packaged software products with specific upgrade rights is recognized in accordance with ASC 985-605. Revenue recognition
for these sales is deferred until the earlier of the point at which sufficient vendor-specific objective evidence ("VSOE") exist for the specific upgrade right or
all elements of the arrangement have been delivered.
In accordance with ASC 985-605-50, cash sales incentives to resellers are accounted for as a reduction of revenue, unless a specific identified benefit is
identified and the fair value is reasonably determinable.
The Company has been engaged to develop language learning software for certain endangered languages under fixed fee arrangements. These
arrangements also include contractual periods of post-contract support ("PCS") and online hosting services ranging from one to ten years. Revenue for multi-
element contracts will be recognized ratably once the PCS and online hosting periods begin, over the longer of the PCS or online hosting period. When the
current estimates of total contract revenue and contract cost indicate a loss for a fixed fee arrangement, a provision for the entire loss on the contract is
recorded.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid investments with original maturities of three months or less and demand deposits with financial
institutions.
Restricted Cash
Restricted cash is restricted for the reimbursement of funds to employees under the Company's flexible benefit plan and security for a credit card
processing vendor.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable consist of amounts due to the Company from its normal business activities. The Company provides an allowance for doubtful
accounts to reflect the expected non-collection of accounts receivable based on past collection history and specific risks identified.
Inventories
Inventories are stated at the lower of cost, determined on a first-in first-out basis, or market. The Company reviews inventory for excess quantities and
obsolescence based on its best estimates of future
F-9