Banana Republic 2005 Annual Report Download - page 33

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G A P I N C . F I N A N C I A L S 2 0 0 5
gap inc. 2005 annual report 31
Revenue Recognition
We recognize revenue and the related cost of goods sold (including shipping costs) at the time the products are received by the customers in accor-
dance with the provisions of Staff Accounting Bulletin No. (“SAB”) 101, “Revenue Recognition in Financial Statements” as amended by SAB 104,
“Revenue Recognition.” Revenue is recognized for store sales at the point at which the customer receives and pays for the merchandise at the reg-
ister with either cash or credit card. For online sales, revenue is recognized at the time we estimate the customer receives the product. We estimate
and defer revenue and the related product costs for shipments that are in-transit to the customer. Customers typically receive goods within a few days
of shipment. Such amounts were immaterial as of January 28, 2006, January 29, 2005, and January 31, 2004. Amounts related to shipping and
handling that are billed to customers are reflected in net sales and the related costs are reflected in cost of goods sold and occupancy expenses.
Allowances for estimated returns are recorded based on estimated gross profit using our historical return patterns.
Upon the purchase of a gift card or issuance of a gift certificate, a liability is established for the cash value of the gift card or gift certificate. The liabil-
ity is relieved and income is recorded as net sales upon redemption or as other income, which is a component of operating expenses, after sixty
months, whichever is earlier. It is our historical experience that the likelihood of redemption after sixty months is remote. The liability for gift cards
and gift certificates is recorded in accounts payable on the Consolidated Balance Sheets.
Income Taxes
We record reserves for estimates of probable settlements of foreign and domestic tax audits. At any point in time, many tax years are subject to or in
the process of audit by various taxing authorities. To the extent that our estimates of probable settlements change or the final tax outcome of these
matters is different than the amounts recorded, such differences will impact the income tax provision in the period in which such determinations are
made. We also record a valuation allowance against our deferred tax assets arising from certain net operating losses when it is more likely than not that
some portion or all of such net operating losses will not be realized. Our effective tax rate in a given financial statement period may be materially im-
pacted by changes in the mix and level of earnings, changes in the expected outcome of audits or changes in the deferred tax valuation allowance.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note A to the Consolidated Financial Statements for recent accounting pronouncements, including the expected dates of adoption and esti-
mated effects on our financial position, statement of cash flows and results of operations.