F-18 WIX.COM LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data) NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) q. Revenue recognition: In May 2014, the FASB issued ASU 2014-09 guidance on revenue from contracts with customers (Topic 606) that supersedes the existing revenue recognition guidance and clarifies the principles for recognizing revenue. The core principle is that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. On January 1, 2018, The Company adopted the standard using the modified retrospective method of adoption to those contracts which were not completed as of January 1, 2018. This means that the cumulative impact of the adoption was recognized in retained earnings as of January 1, 2018 and that comparatives were not restated. The most significant impact of the standard relates to the Company accounting for revenue from domain names and third party developer applications. Specifically, under the new standard, the Company recognize revenues from domain names and third party applications at the time of delivery, rather than over the contract period. The cumulative effect of the changes made to the Company's January 1, 2018 consolidated balance sheet for the adoption of Topic 606 were as follows (USD, in thousands): Balance at December 31, 2017 Adjustments due to Topic 606 Balance at January 1, 2018 Prepaid expenses and other current assets 19,246 (10,745 ) 8,501 Prepaid expenses and other long-term assets 3,823 (2,697 ) 1,126 Deferred revenues ST 202,482 (25,379 ) 177,103 Deferred revenues LT 14,329 (6,393 ) 7,936 Accumulated deficit (299,581 ) 18,330 (281,251 ) Revenue recognition related to other products and services remain substantially unchanged. The adoption of ASU No. 2014-09 had no impact on cash provided by or used in operating, investing, and financing activities in our consolidated statement of cash flows. Please refer to Note 15 - Segments, Customers and Geographic Information for further information, including presentation of disaggregated revenue by geography." The Company charges the customer for the entire consideration at inception date, and accordingly the services are provided from that date for the agreed service period. The Company records contract liability when cash payments are received in advance of performance, and these revenues are recognized ratably over the service period. The balance of deferred revenues approximates the aggregate amount of the transaction price allocated to the unsatisfied performance obligations at the end of reporting period. The Company expects to recognize the short-term portion of deferred revenue, $289,148 over the next twelve months and the long-term portion of deferred revenue over the remaining service period of up to five years. F-19 WIX.COM LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. dollars in thousands (except share and per share data) NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) Accounting policies and significant judgements: The Company recognized revenue in accordance with Topic 606 when, or as, control of the promised goods or services is transferred to the customer, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Revenue is recognized net of allowances for refunds and any taxes collected from customers, which are subsequently remitted to governmental authorities. The Company applies the following five steps: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied. The Company offers a 14-day money back guaranty ("Guaranty Period") on new premium subscription. The Company considers such amount collected from new premium subscriptions as customer deposits until the end of the 14-day trial period. Revenues are recognized once the Guaranty Period has expired. Our revenue is categorized and disaggregated as reflected in our statements of operations, as follows: Creative Subscriptions Revenues from premium subscriptions are recognized on a straight-line basis over the contract period, since the customer simultaneously receives and consumes the benefits provided by the Company's performance as the Company performs. Revenues related to the purchase and registration of domain names is recognized at the full amount paid by the customer at a point in time upon the purchase and registration of the domain name, since that is when the Company satisfies the performance obligation. Business Solutions Revenues related to Google's G-Suite application is recognized at a point in time upon the purchase, since that is when the Company satisfies the performance obligation Other subscriptions and software applications developed by the Company are recognized on a straight-line basis over the contract period, since the customer simultaneously receives and consumes the benefits provided by our performance as the Company performs. Revenues related to third party software applications are recognized on a net basis at a point in time upon purchase of the application, since that is when the Company completes its obligation to facilitate the transfer between the customer and the third-party developer. Revenue related to the sale of online advertising inventory (ad space) and other related advertising services to brands and advertising agencies are recognized at a point in time, when an ad space is sold. Each of our goods and services is sold separately, therefore standalone selling prices (SSP) for each of them is observed, and allocation of the transaction price between the performance obligations in the contract is made relatively on that basis. Refunds are estimated at contract inception and updated at the end of each reporting period if additional information becomes available. Principal versus Agent Considerations We sell our products directly to customers and also through a network of resellers. In certain cases, we act as a reseller of products provided by others. The determination of gross or net revenue recognition is reviewed on a product-by-product basis and is dependent on our determination as to whether we act as principal or agent in the transaction. Revenue associated with sales through our network of resellers, for certain aftermarket domain sales and for third-party offerings including Google's G-Suite application is recorded on a gross basis as we have determined that we control the product before transferring it to our end customers. Revenues related to third party software applications when the Company does not control the product or service before transferring to the customers are recognized on a net basis. The Company uses the practical expedient and does not assess the existence of a significant financing component when the difference between payment and revenue recognition is a year or less.