Electronic Arts 2011 Annual Report Download - page 142

Taxes Collected from Customers and Remitted to Governmental Authorities
Taxes assessed by a government authority that are both imposed on and concurrent with specific revenue
transactions between us and our customers are presented on a net basis in our Consolidated Statements of
Operations.
Concentration of Credit Risk
We extend credit to various companies in the retail and mass merchandising industries. Collection of trade
receivables may be affected by changes in economic or other industry conditions and may, accordingly, impact
our overall credit risk. Although we generally do not require collateral, we perform ongoing credit evaluations of
our customers and maintain reserves for potential credit losses. Invoices are aged based on contractual terms with
our customers. The provision for doubtful accounts is recorded as a charge to operating expense when a potential
loss is identified. Losses are written off against the allowance when the receivable is determined to be
uncollectible.
Short-term investments are placed with high quality financial institutions or in short-duration, investment-grade
securities. We limit the amount of credit exposure in any one financial institution or type of investment
instrument.
Revenue Recognition
We evaluate revenue recognition based on the criteria set forth in FASB ASC 985-605, Software: Revenue
Recognition and Staff Accounting Bulletin (“SAB”) No. 101, Revenue Recognition in Financial Statements,as
revised by SAB No. 104, Revenue Recognition. We evaluate and recognize revenue when all four of the
following criteria are met:
•Evidence of an arrangement. Evidence of an agreement with the customer that reflects the terms and
conditions to deliver products must be present.
•Delivery. Delivery is considered to occur when a product is shipped and the risk of loss and rewards of
ownership have been transferred to the customer. For online game services, delivery is considered to
occur as the service is provided. For digital downloads that do not have an online service component,
delivery is generally considered to occur when the download is made available.
•Fixed or determinable fee. If a portion of the arrangement fee is not fixed or determinable, we recognize
revenue as the amount becomes fixed or determinable.
•Collection is deemed probable. We conduct a credit review of each customer involved in a significant
transaction to determine the creditworthiness of the customer. Collection is deemed probable if we expect
the customer to be able to pay amounts under the arrangement as those amounts become due. If we
determine that collection is not probable, we recognize revenue when collection becomes probable
(generally upon cash collection).
Determining whether and when some of these criteria have been satisfied often involves assumptions and
management judgments that can have a significant impact on the timing and amount of revenue we report in each
period. For example, for multiple element arrangements, we must make assumptions and judgments in order to
(1) determine whether and when each element has been delivered, (2) determine whether undelivered products or
services are essential to the functionality of the delivered products and services, (3) determine whether vendor
specific objective evidence (“VSOE”) exists for each undelivered element, and (4) allocate the total price among
the various elements we must deliver. Changes to any of these assumptions or management judgments, or
changes to the elements in a software arrangement, could cause a material increase or decrease in the amount of
revenue that we report in a particular period.
Depending on the type of product, we may offer an online service that permits consumers to play against others
via the Internet and/or receive additional updates or content from us. For those games that consumers can play
via the Internet, we may provide a “matchmaking” service that permits consumers to connect with other
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