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Summary of Significant Accounting Policies
6 Months Ended
Jun. 30, 2018
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies
The Company has identified the significant accounting policies that are critical to understanding its business and results of operations.
Revenue Recognition
The Company adopted ASU No. 2014-09, "Revenue from Contracts with Customers" ("ASU 2014-09") as of January 1, 2018. The Company primarily generates net revenue through product sales on its five distinct sites ("Direct Retail" net revenue) and through (i) product sales on websites operated by third parties and (ii) fees earned for media solutions (collectively, "Other" net revenue).
The Company recognizes net revenue on product sales through the Company's five distinct sites and third party operated websites using the gross method when the Company has concluded it controls the product before it is transferred to the customer. The Company controls products when it is the entity responsible for fulfilling the promise to the customer and takes responsibility for the acceptability of the goods, assumes inventory risk from shipment through the delivery date, has discretion in establishing prices, and selects the suppliers of products sold. The Company recognizes net revenue from sales of its products upon delivery to the customer. As the Company ships a large volume of packages through multiple carriers, actual delivery dates may not always be available and as such the Company estimates delivery dates based on historical data.
Net revenue from product sales includes shipping costs charged to the customer and is recorded net of taxes collected from customers, which are remitted to governmental authorities. Cash discounts and rebates earned by customers at the time of purchase are deducted from gross revenue in determining net revenue. Allowances for sales returns are estimated and recorded based on prior returns history, recent trends, and projections for returns on sales in the current period.
The Company also earns revenue through third-party advertisers that pay based on the number of advertisement related clicks, actions, or impressions for advertisements placed on the Company's sites. Revenue earned under these arrangements is included in net revenue and is recognized in the period in which the click, action, or impression occurs.
Net revenue from contracts with customers is disaggregated by Direct Retail and Other net revenue and by geographic region because this manner of disaggregation best depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. Refer to Note 8, Segment and Geographic Information, for additional detail.
The Company has three types of contractual liabilities: (i) cash collections from its customers prior to delivery of products purchased, which are included in "Deferred revenue," and are recognized as net revenue when the products are delivered, (ii) unredeemed gift cards and site credits, which are included in "Deferred revenue." Certain gift cards and site credits are not expected to be redeemed, also known as breakage, and are recognized as net revenue over the expected redemption period of twenty-four months from the date of issuance, subject to requirements to remit balances to governmental agencies, and (iii) membership rewards redeemable for future purchases, which are earned by customers on purchases made with the Company's Wayfair branded, private label credit card, and are included in "Other current liabilities," and are recognized as net revenue when redeemed.
Contractual liabilities included in "Deferred revenue" and "Other current liabilities" in the consolidated and condensed balance sheets were $121.6 million and $2.7 million at June 30, 2018 and $94.1 million and $2.6 million at December 31, 2017, respectively. During the six months ended June 30, 2018, the Company recognized $73.9 million and $1.7 million of net revenue included in "Deferred revenue" and "Other current liabilities," respectively, at December 31, 2017.
The Company adopted ASU 2014-09 using a modified retrospective approach and recognized a $4.7 million cumulative-effect adjustment to reduce "Accumulated deficit" as of January 1, 2018. The cumulative-effect adjustment to "Accumulated deficit" was due to breakage of gift cards and site credits, to the extent there is no requirement for remitting balances to governmental agencies. Prior period balances were not retrospectively adjusted.
The Company believes that other than the implementation of ASU 2014-09, there have been no significant changes during the six months ended June 30, 2018 to the items disclosed in Note 2, Summary of Significant Accounting Policies, included in Part II, Item 8, Financial Statements and Supplementary Data, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.