Nordstrom is an upscale department store chain founded in Seattle by John W. Nordstrom in 1901. In addition to its department stores, Nordstrom also operates its own bank, called Nordstrom Bank, which offers its own line of credit cards for Nordstrom customers.
Credit can be a good thing when used carefully. However, during the economic slump that started in late 2008, retailers such as Nordstrom experienced a large jump in store credit card delinquencies and write- offs. In a recent SEC filing, Nordstrom reported that in first- quarter 2009, its bad debts expense related to its store credit card business increased 158 percent compared to first- quarter 2008. Other high- end retailers such as Neiman Marcus, Bloomingdale’s, and Saks Fifth Avenue also are experiencing this economic phenomenon.
How might Nordstrom account for these write-offs? Which method of accounting for bad debts expense might Nordstrom use? Why?