Below are the footnotes to Barnes & Noble Inc. \'s 2012 annual report and member

Question

Below are the footnotes to Barnes & Noble Inc. 's 2012 annual report and membership information obtained from its Website: The Barnes & Noble Member Program offers members greater discounts and other benefits for products and services, as well as exclusive offers and promotions via e-mail or direct mail for an annual fee of $25. 00, which is non-refundable after the first 30 days. Revenue is recognized over the twelve-month period based upon historical spending patterns for Barnes & Noble Members. The Barnes & Noble Member Program entitles Members to the following benefits: 40% off the list price of the current hardcover Barnes & Noble Store Bestsellers. 10% off the marked Barnes & Noble sale price of other eligible items. Free Express Shipping. Periodic special promotions at Barnes & Noble Stores and at BN. com. Explain in layman's terms how Barnes & Noble accounts for the cash received for its membership program. When does Barnes & Noble record revenue from this program? How does Barnes & Noble's balance sheet reflect those membership fees? Does the 40% discount affect Barnes & Noble's income statement when membership fees are received?

Explanation / Answer

Cash received for its membership program is debited to cash and credited to unearned revenue as $25 is received in advance and that does not form the part of their revenue until the benefit is expired. This revenue is recorded at the end of the year. This membership fees is recorded as short term liability in the liabilities side. Cash received in added in the cash balance. Yes this discount is subtracted from the revenue and hence total amount of revenue is reduced. However, it helps in getting more business

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