eBay 2004 Annual Report Download - page 100

eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
of August 31, 2004 and determined there to be no impairment. There were no events or circumstances from
that date through December 31, 2004 that would impact this assessment.
Due to customers
Customers utilize our payment services to transfer money electronically over the Internet. Any stored
value remaining from transactions in a customer's account represents a liability to the customer. Customers in
the U.S. can elect to sweep their account balances into the PayPal Money Market fund to earn a rate of
return; otherwise, customers earn no interest on their balances. PayPal earns interest on the customer balances
receiving service through PayPal's U.K. subsidiary.
Revenue recognition
Our net revenues result from fees associated with our transaction, advertising and other non-transaction
services in our U.S. Marketplace, International Marketplace and Payments segments. Transaction revenue is
derived primarily from listing, feature and Ñnal value fees paid by sellers and fees from payment processing
services. Revenue from advertising is derived principally from the sale of online banner and sponsorship
advertisements for cash and through barter arrangements. Other non-transaction net revenue is primarily
composed of our end-to-end services net revenue that is derived principally from contractual arrangements
with third parties that provide transaction services to eBay users.
Listing and feature fee revenues are recognized ratably over the estimated period of the auction while
revenues related to Ñnal value fees are recognized at the time that the transaction is successfully concluded. A
transaction is considered successfully concluded when at least one buyer has bid above the seller's speciÑed
minimum price or reserve price, whichever is higher, at the end of the transaction term. Our Payments
segment earns transaction fees from processing transactions for certain customers. Revenue resulting from a
payment processing transaction is recognized once the transaction is complete. Provisions for doubtful
accounts, authorized credits and transaction losses are made at the time of revenue recognition based upon our
historical experience. The provision for doubtful accounts is recorded as a charge to operating expense, while
the provisions for authorized credits and transaction losses are recognized as reductions of net revenues.
Our advertising revenue is derived principally from the sale of online banner and sponsorship advertise-
ments. To date, the duration of our banner and sponsorship advertising contracts has ranged from one week to
Ñve years, but is generally one week to one year. Advertising revenues on both banner and sponsorship
contracts are recognized as ""impressions'' (i.e., the number of times that an advertisement appears in pages
viewed by users of our websites) are delivered or ratably over the term of the agreement where such
agreements provide for minimum monthly or quarterly advertising commitments or where such commitments
are Ñxed throughout the term. Barter transactions are valued on amounts realized in similar cash transactions
occurring within six months prior to the date of the barter transaction. To the extent that signiÑcant delivery
obligations remain at the end of a period or collection of the resulting account receivable is not considered
probable, revenues are deferred until the obligation is satisÑed or the uncertainty is resolved. These amounts
are included in deferred revenue in our consolidated balance sheet. Revenue from barter arrangements totaled
$10.1 million, $10.1 million and $13.3 million for the years ended December 31, 2002, 2003 and 2004,
respectively, with the reciprocal arrangements being recognized as an operating expense. In general, the
services are received in the same period in which the reciprocal services are provided. In certain circum-
stances, we are required to record against revenue, payments to a party who is also a customer. These
payments primarily consist of certain promotional activities which result in payments to our users.
Our end-to-end services revenues are derived principally from contractual arrangements with third parties
that provide transaction services to eBay and PayPal users. To date, the duration of our end-to-end services
contracts has ranged from one to three years. End-to-end services revenues are recognized as the contracted
services are delivered to end users. To the extent that signiÑcant obligations remain at the end of a period or
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