Lost and found: Booking liabilities and breakage income for unredeemed gift cards

This article describes FASB’s treatment for gift cards, as prescribed in Accounting Standards Update No. 2014-09,Revenue From Contracts With Customers (Topic 606). The purpose of this article is to offer advice for finance professionals in the wide range of businesses that sell and redeem gift cards.

Topics covered:

Management accounting: Technical: Financial accounting & reporting: Professional accounting standards, Intermediate
Financial accounting & reporting: Technical: FASB financial accounting & reporting: Revenue recognition, Intermediate

4 Comments/Reflections

M W Dec 2016

This article was very helpful, as we started to use gift card and struggled to account for the revenue received.

Its interesting that you can make an assumption of gift card not being redeemed and that you can use that percentage calculated annually to

Tendai Nyakurimwa Feb 2016

An informative peace of article that helps accountants to deal with unredeemed gift cards.The new revenue recognition standard links the recognition of breakage
income to the proportionate value of actual gift card redemptions. The new standard says companies should classify income from gift card sales and breakage
income as sales revenue.If an organization does not expect to be entitled to breakage income,then it cannot recognize revenue—until it judges the likelihood to be remote that the card’s balance will be redeemed.

This article has really met my expectations as I was looking forward to the treatment of unredeemed gift cards. Although I am not in the retail industry, the knowledge is vital and can be used at a later stage if opportunity presents itself.

Anna Sallis Apr 2015

I've never worked in an industry that uses gift cards so found this very interesting from a technical accounting view.

Sivaganeshan Balaratnam Mar 2015

Key takeaways

1. FASB/IASB new revenue recognition standard links revenue recognition of breakage income (i.e. unredeemed gift cards) to the proportionate value of actual gift redemptions.

2. Where you don't expect top earn income I.e. no redemption of the gift cards, then you need to wait until the possibility of redemption is considered remote.

3. Gift card sales and breakage income will be reported as sales revenue in the income statement

4. Must consider the impact of state laws on escheatment.

Technical