Dell 2009 Annual Report Download - page 62

Table of Contents
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
vendor's products. Dell recognizes a reduction of cost of goods sold and inventory if the funds are a reduction of the price of the vendor's
products. If the consideration is a reimbursement of costs incurred by Dell to sell or develop the vendor's products, then the consideration
is classified as a reduction of that cost in the Consolidated Statements of Income, most often operating expenses. In order to be
recognized as a reduction of operating expenses, the reimbursement must be for a specific, incremental, identifiable cost incurred by Dell
in selling the vendor's products or services.
Loss Contingencies — Dell is subject to the possibility of various losses arising in the ordinary course of business. Dell considers the
likelihood of loss or impairment of an asset or the incurrence of a liability, as well as Dell's ability to reasonably estimate the amount of
loss, in determining loss contingencies. An estimated loss contingency is accrued when it is probable that an asset has been impaired or a
liability has been incurred and the amount of loss can be reasonably estimated. Dell regularly evaluates current information available to
determine whether such accruals should be adjusted and whether new accruals are required. Third parties have in the past and may in the
future assert claims or initiate litigation related to exclusive patent, copyright, and other intellectual property rights to technologies and
related standards that are relevant to Dell.
Shipping Costs — Dell's shipping and handling costs are included in cost of sales in the accompanying Consolidated Statements of
Income for all periods presented.
Selling, General, and Administrative — Selling expenses include items such as sales salaries and commissions, marketing and advertising
costs, and contractor services. Dell expenses advertising costs as incurred. See Note 15 of Notes to Consolidated Financial Statements for
more information on advertising expenses. General and administrative expenses include items for Dell's administrative functions, such as
Finance, Legal, Human Resources, and Information Technology support. These functions include costs for items such as salaries,
maintenance and supplies, insurance, depreciation expense, and allowance for doubtful accounts.
Research, Development, and Engineering Costs — Research, development, and engineering costs are expensed as incurred. Research,
development, and engineering expenses primarily include payroll and headcount related costs, contractor fees, infrastructure costs, and
administrative expenses directly related to research and development support.
Website Development Costs — Dell expenses, as incurred, the costs of maintenance and minor enhancements to the features and
functionality of its websites.
Income Taxes — Deferred tax assets and liabilities are recorded based on the difference between the financial statement and tax basis of
assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Dell calculates a
provision for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized by
identifying the temporary differences arising from the different treatment of items for tax and accounting purposes. In determining the
future tax consequences of events that have been recognized in the financial statements or tax returns, judgment and interpretation of
statutes is required. Additionally, Dell uses tax planning strategies as a part of its global tax compliance program. Judgments and
interpretation of statutes are inherent in this process.
The accounting guidance for uncertainties in income tax prescribes a comprehensive model for the financial statement recognition,
measurement, presentation, and disclosure of uncertain tax positions taken or expected to be taken in income tax returns. Dell recognizes
a tax benefit from an uncertain tax position in the financial statements only when it is more likely than not that the position will be
sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits and a
consideration of the relevant taxing authority's widely understood administrative practices and precedents.
Comprehensive Income — Dell's comprehensive income is comprised of net income, unrealized gains and losses on marketable securities
classified as available-for-sale, foreign currency translation adjustments, and unrealized gains and losses on derivative financial
instruments related to foreign currency hedging. In the first quarter of Fiscal
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