Revenue for gift card breakage should be recognized:
A) When the gift card is sold.
B) No later than the last day of the operating period in which the gift card is delivered to the customer.
C) When the probability of gift card redemption is viewed as remote.
D) Under no circumstances, as gift cards are not themselves a delivered product, but rather a selling technique.

Question

Quizplus · Accepted Answer

Revenue for gift card breakage should be recognized when the probability of gift card redemption is viewed as remote. This is because breakage occurs when a gift card is not redeemed by the customer, and the company can then recognize the unredeemed portion of the gift card as revenue. However, recognition should only occur when it is probable that the gift card will not be redeemed, meaning that the gift card has expired or the customer has lost it, for example. Recognizing breakage revenue too early could result in overstating revenue and understating liabilities. Therefore, the correct choice is C.

Revenue for Gift Card Breakage Should Be Recognized