University of Cincinnati Lindner College of Business

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Ending Eternal Liabilities in Gift Card Accounting

Author(s): Rick Warne

Status: Published
Year: 2017
Publication Name: Journal of Corporate Accounting and Finance
Volume: 28, Issue: 5, Page Number(s): 41-44


Abstract

The Financial Accounting Standards Board recently updated rules regarding revenue recognition, which includes the accounting for gift card and customer loyalty point “breakage.” Breakage is the number of gift cards sold or customer loyalty points that will remain unredeemed indefinitely. Until the recent change, some companies kept the liabilities on their records indefinitely, while other companies reduced the liabilities over time, which created inconsistencies between companies. This article provides an example and discusses the changes related to accounting for gift cards and customer loyalty programs.


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