Revenue Recognition

We generate revenue primarily from the sale of products and services, both as a principal and as an agent. Revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the transaction price consideration that we expect to receive in exchange for those goods or services. Control refers to the ability of the customer to direct the use of, and obtain substantially all of, the remaining benefits from the goods or services. Our transaction price consideration is fixed, unless otherwise disclosed below as variable consideration. We generate all of our operating revenue from contracts with customers. Our revenue excludes sales and usage-based taxes collected.

Revenue from product sales and services is reported net of sales refunds, which includes an estimate of future returns and contract cancellations primarily based on historical refund rates, with a corresponding reduction to cost of sales. There is inherent judgment in estimating future refunds as they are susceptible to factors outside of our influence. However, we have significant experience in estimating the amount of refunds, based primarily on historical data. Our refund liability for sales returns was $77 million and $23 million at February 2, 2019, and February 3, 2018, respectively, which is included in Accrued liabilities on our Consolidated Balance Sheets and represents the expected value of the aggregate refunds that will be due to our customers. We also have a corresponding asset included in Other current assets on our Consolidated Balance Sheets that represents the inventory we expect to be returned, valued at the lower of cost or net realizable value. As of February 2, 2019, and February 3, 2018, this amount was $55 million and $0 million, respectively. The increases in our refund liability and corresponding asset balances from February 3, 2018, to February 2, 2019, are primarily driven by the impact of adopting the new revenue recognition guidance in the current year.

For revenue transactions that involve more than one performance obligation, we defer the revenue associated with any unsatisfied performance obligation until the obligation is satisfied, i.e., when control of a product is transferred to the customer or a service is completed. For such contracts, we allocate revenue and any discounts to each performance obligation based on its relative standalone selling price. We determine standalone selling prices based on the prices charged to customers or, when directly observable selling prices are not available, we generally use an expected cost-plus margin approach. Short-term deferred revenue was $446 million and $453 million as of February 2, 2019, and February 3, 2018, respectively. At February 2, 2019, and February 3, 2018, deferred revenue included within long-term liabilities was $11 million and $22 million, respectively.

Our contract liabilities primarily relate to product merchandise not yet delivered to customers; unredeemed gift cards; services not yet completed; services technical support contracts, where performance is satisfied over the duration of the contract; and options that provide a material right to customers, such as our customer loyalty programs. Most of our contract liabilities have a duration of one year or less. For an insignificant portion of our technical support service contracts, terms of up to three years apply. We do not have any material contract assets.

The following table provides information about receivables and contract liabilities from our contracts with customers, which reflects the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied as of February 2, 2019, and February 4, 2018 ($ in millions):



	February 2, 2019		February 4, 2018
Receivables, net of an allowance for doubtful accounts of $13 and $24, respectively	$	565	$	674
Short-term contract liabilities included in:
Unredeemed gift cards	290		316
Deferred revenue	446		408
Accrued liabilities	146		151
Long-term contract liabilities included in:
Long-term liabilities	11		22

We establish allowances for uncollectible receivables based on historical collection trends and write-off history. The following table summarizes our allowance for doubtful accounts activity related to contracts with customers for fiscal 2019 ($ in millions):



	Allowance for Doubtful Accounts
Balance at February 4, 2018	$	24
Charged to expenses or other accounts	35
Other⁽¹⁾	(46		)
Balance at February 2, 2019	$	13


(1)	Includes bad debt write-offs, recoveries and the effect of foreign currency fluctuations.

The following table summarizes significant changes in our contract liability balances for the fiscal year ended February 2, 2019 ($ in millions):



	Fiscal Year Ended
	February 2, 2019
Revenue recognized that was included in the contract liability balance(s) as of February 4, 2018	$	871
Revenue recognized from performance obligations satisfied in previous periods	—
Increase due to acquisition⁽¹⁾	16
Adjustments⁽²⁾	(1		)


(1)	Represents an increase in our contract liability balances due to our acquisition of GreatCall, primarily related to deferred revenue.


(2)	Includes changes in the measure of progress, changes in the estimate of the transaction price or contract modifications.

The following table includes estimated revenue from our contract liability balances expected to be recognized in future periods if performance of the contract is expected to have a duration of more than one year ($ in millions):



Fiscal Year	Amount⁽¹⁾
2020	$	14
2021	7
2022	3
2023	1

(1)

We have elected to exclude unsatisfied performance obligations from contract liability balances with a duration of one year or less. The estimated transaction price revenue disclosed above also does not include amounts of variable consideration attributable to contracts where the consideration is constrained at February 2, 2019. Further information about our forms of variable consideration is disclosed below.

We apply a practical expedient to expense direct costs of obtaining a contract when incurred because the amortization period would have been one year or less. See Note 14, Segment and Geographic Information, for a disaggregation of revenue by reportable segment and product category, which represents how our chief operating decision maker reviews information internally to evaluate our financial performance and to make resource allocation and other decisions for the enterprise.