Overstock.com 2011 Annual Report Download - page 105

Table of Contents
Overstock.com, Inc.
Notes to Consolidated Financial Statements (Continued)
2. ACCOUNTING POLICIES (Continued)
Accounts receivable
Accounts receivable consist primarily of trade amounts due from customers and from uncleared credit card transactions at period end. Accounts
receivable are recorded at invoiced amounts and do not bear interest.
Allowance for doubtful accounts
From time to time, we grant credit to certain of our business customers on normal credit terms (typically 30 days). We perform credit evaluations of our
business customers' financial condition and payment history and maintain an allowance for doubtful accounts receivable based upon our historical collection
experience and expected collectability of accounts receivable. The allowance for doubtful accounts receivable was $574,000 and $2.0 million at December 31,
2011 and December 31, 2010, respectively. The decrease in the allowance for doubtful accounts was primarily due to write-offs of accounts receivable during
the year ended December 31, 2011, which had no significant effect on results of operations for the period as most of the items had been previously reserved.
Concentration of credit risk
Cash equivalents include short-term, highly liquid instruments with maturities at date of purchase of three months or less. At December 31, 2011 and
2010, two banks held the majority of our cash and cash equivalents. We do not believe that, as a result of this concentration, we are subject to any unusual
financial risk beyond the normal risk associated with commercial banking relationships.
Financial instruments that potentially subject us to significant concentrations of credit risk consist primarily of cash equivalents and receivables. We
invest our cash primarily in money market securities which are uninsured.
Our accounts receivable are derived primarily from revenue earned from customers located in the United States. We maintain an allowance for doubtful
accounts based upon the expected collectability of accounts receivable.
Valuation of inventories
Inventories, consisting of merchandise purchased for resale, are accounted for using a standard costing system which approximates the first-in-first-out
("FIFO") method of accounting, and are valued at the lower of cost or market. We write down our inventory for estimated obsolescence and to lower of cost
or market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by
management, additional inventory write-downs may be required. Once established, the original cost of the inventory less the related inventory allowance
represents the new cost basis of such products.
Prepaid inventories, net
Prepaid inventories represent inventories paid for in advance of receipt. Prepaid inventories at December 31, 2011 and 2010 were $1.0 million and
$2.1 million respectively.
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