Restoration Hardware 2014 Annual Report Download - page 67

Off Balance Sheet Arrangements
We have no material off balance sheet arrangements as of January 31, 2015.
Critical Accounting Policies and Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the
United States requires management to make estimates and assumptions that affect amounts reported in our
consolidated financial statements and related notes, as well as the related disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. Management evaluates its accounting policies, estimates, and judgments on an on-going basis.
Management bases its estimates and judgments on historical experience and various other factors that are
believed to be reasonable under the circumstances. Actual results may differ from these estimates under different
assumptions and conditions and such differences could be material to the consolidated financial statements.
Management evaluated the development and selection of its critical accounting policies and estimates and
believes that the following involve a higher degree of judgment or complexity and are most significant to
reporting our results of operations and financial position, and are therefore discussed as critical. The following
critical accounting policies reflect the significant estimates and judgments used in the preparation of our
consolidated financial statements. With respect to critical accounting policies, even a relatively minor variance
between actual and expected experience can potentially have a materially favorable or unfavorable impact on
subsequent results of operations. However, our historical results for the periods presented in the consolidated
financial statements have not been materially impacted by such variances. More information on all of our
significant accounting policies can be found in Note 3—Significant Accounting Policies to our audited
consolidated financial statements.
Revenue Recognition
We recognize revenues and the related cost of goods sold when merchandise is received by our customers.
Revenues from direct-to-customer and home-delivered sales are recognized when the merchandise is delivered to
the customer. Revenues from “cash-and-carry” store sales are recognized at the point of sale in the store.
Discounts provided to customers are accounted for as a reduction of sales.
We recognize shipping and handling fees as revenue when the merchandise is received by our customers.
Costs of shipping and handling are included in cost of goods sold.
Sales tax collected is not recognized as revenue as it is ultimately remitted to governmental authorities.
We reserve for projected merchandise returns based on actual, historical experience and various other
assumptions that we believe to be reasonable. Actual merchandise returns are monitored regularly and have not
been materially different from the estimates recorded. Merchandise returns are granted for various reasons,
including delays in product delivery, product quality issues, customer preference and other similar matters.
Product returned often represents merchandise that can be resold. Amounts refunded to customers are generally
made by issuing the same payment tender as used in the original purchase. Merchandise exchanges of the same
product and price are not considered merchandise returns and, therefore, are excluded when calculating the sales
returns reserve.
Our customers may return purchased items for a refund. We provide an allowance for sales returns, net of
cost of goods sold, based on historical return rates.
Merchandise Inventories
Our merchandise inventories are comprised of finished goods and are carried at the lower of cost or market,
with cost determined on a weighted-average cost method and market determined based on the estimated net
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