Revenue (Notes) |
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| Revenue from Contract with Customer [Text Block] |
Revenue
Disaggregated revenue by segment and product category consisted of the following:
Consumer Product Revenue and Other Revenue
QVC's revenue includes sales of consumer products in the following categories; home, beauty, apparel, accessories, electronics and jewelry, which are primarily sold through live merchandise-focused televised shopping programs and via our websites and other interactive media.
Other revenue consists primarily of income generated from our U.S. PLCC in which a large consumer financial services company provides revolving credit directly to QVC's customers for the sole purpose of purchasing merchandise or services with a PLCC. In return, the Company receives a portion of the net economics of the credit card program.
Revenue Recognition
For the years ended December 31, 2019 and 2018, revenue is recognized when obligations with the Company's customers are satisfied; generally this occurs at the time of shipment to its customers consistent with when control of the shipped product passes. The recognized revenue reflects the consideration the Company expects to receive in exchange for transferring goods, net of allowances for returns.
The Company generally recognizes revenue related to the PLCC over time as the PLCC is used by QVC's customers.
Sales, value add, use and other taxes the Company collects concurrent with revenue-producing activities are excluded from revenue.
The Company has elected to treat shipping and handling activities that occur after the customer obtains control of the goods as a fulfillment cost and not as a promised good or service. Accordingly, the Company accrues the related shipping costs and recognizes revenue upon delivery of the goods to the shipping carrier. In electing this accounting policy, all shipping and handling activities are treated as fulfillment costs.
The Company generally has payment terms with its customers of one year or less and elected the practical expedient applicable to such contracts under ASC 606 not to consider the time value of money.
In accordance with the new revenue standard requirements adopted as of January 1, 2018, the impact of adoption on our condensed consolidated statements of operations was as follows:
The effect of changes of adoption is primarily due to the timing of revenue recognition at QVC and the classification of income for the Company's PLCC income. For the years ended December 31, 2019 and 2018, revenue is recognized at the time of shipment to the Company's customers consistent with when control passes and PLCC income is recognized in net revenue. For the year ended December 31, 2017, revenue at QVC was recognized at the time of delivery to the customers and deferred revenue was recorded to account for the shipments in-transit. In addition, PLCC income was recognized as an offset to selling, general and administrative expenses.
Significant Judgments
Our products are generally sold with a right of return and we may provide other credits or incentives, which are accounted for as variable consideration when estimating the amount of revenue to recognize. Returns and credits are estimated at contract inception and updated at the end of each reporting period as additional information becomes available. The Company has determined that it is generally the principal in vendor arrangements as the Company can establish control over the goods prior to shipment. Accordingly, the Company records revenue for these arrangements on a gross basis.
The total reduction in net revenue due to returns for the years ended December 31, 2019, 2018 and 2017 aggregated to $2,138 million, $2,213 million and $1,811 million, respectively.
As a result of the adoption of ASC 606 the Company recognized a separate $116 million asset (included in prepaid expenses and other current assets) related to the expected return of inventory and a $242 million liability (included in accrued liabilities) relating to its sales return reserve as of December 31, 2018, instead of the net presentation of the liability that was reported at December 31, 2017.
A summary of activity in the allowance for sales returns, recorded on a gross basis for the years ended December 31, 2019 and 2018 and recorded on a net margin basis for the year ended December 31, 2017, was as follows:
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