What to Do With Unredeemed Gift Cards?

During 2014, CEB TowerGroup estimated that more than $124 billion was loaded on gift cards in the U.S.  The increased use of gift cards has presented the retail industry with upfront cash in exchange for future exchange of goods or services.  However, this presents challenges from an accounting perspective on what to do with the unredeemed gift cards.

ASU Update 2014-09

Prior to the release of the new revenue recognition standard, Accounting Standards Update (ASU) No. 2014-09, Revenue with Contracts from Customers, there was little guidance related to the accounting for unredeemed gift cards.  With the limited guidance currently available, there are three accounting models generally accepted for recognizing breakage on unredeemed gift cards:  Recognize proportionately as redemptions occur, recognize when rights expire, or recognize when it becomes remote that the holder of the gift card will demand performance.

Because there is currently diversity in practice used by retailers under the current revenue recognition guidance, the Financial Accounting Standards Board (FASB) addressed accounting for breakage income with the release of ASU No. 2014-09.  Under the new revenue recognition model, retailers will be required to estimate the expected breakage and recognize income in proportion to the redemption patterns of their customers.  The release of the new revenue recognition standard should eliminate the diversity in practice for accounting for breakage in the retail industry.

You’ve heard our thoughts… We’d like to hear yours

The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at [email protected].

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2024 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

our thoughts on
Get the Low Down Before You Download: Exploring the Temu App’s Security Risks
Audit BY Erin Puko-Wilking
2024 Audit Plan Hot Spots
Fortifying Retail Security: Essential Cybersecurity Tools and Software
Ensuring Network Security in the Retail Industry: A Crucial Imperative
Cap Table Basics for Startup Companies
Potential Accounting Changes for Environmental Credits
Register to receive our weekly newsletter with our most recent columns and insights.
Have a question? Ask us!

We’d love to hear from you. Drop us a note, and we’ll respond to you as quickly as possible.

Ask us
contact us
Pittsburgh

This site uses cookies to ensure that we give you the best user experience. Cookies assist in navigation, analyzing traffic and in our marketing efforts as described in our Privacy Policy.

×