1Maple 44 points45 points 6 months ago

So what? Look at it this way. I have $10, and my friend has $10. They give me $10, and I give them mine. They buy something and have $0.50 left over. They put the $0.50 in a piggy bank. 2 years later I go to their house, reach in and take that $0.50. does that sound right?

[deleted] 17 points18 points 6 months ago

Yeah, I don't understand how it's supposed to be a liability. The business already has the money. Not only that, but if they sold a $10 gift card, they got $10 and exchanged no tangible merchandise. The customer takes that gift card, and buys $9 worth of socks or whatever. That remaining $1 isn't enough to buy anything else, and never gets spent. Company effectively sold a $9 pair of socks for $10.

Deducting the gift card balance is therefore one of two things: either the money leaves the gift card and returns to the company's balance. The actual dollar amount changes accounts. Customer gave the company $10, spent $9, and then has an additional $1 taken. The company has now got $11 from the customer. OR that money just gets deleted. Company has $10, deletes that $1 from the card, and it just evaporates into thin air. Customer got $9 of merchandise, and is never able to redeem that additional $1 because it doesn't exist anymore, while the company still got the full $10 value of the card.

Either way, the company already has the money. When my store offered gift cards, my policy was that they were non-refundable, but the balance remained forever. I already had the money. If they bought a gift card, and then never spent it, I was ahead.

bankerman 67 points68 points 6 months ago

I think you fundamentally misunderstand what a “liability” is in corporate finance. If you pay a company $50 for a $50 gift card, they now book a $50 liability, meaning that they owe you $50 of merchandise at some unspecified time in the future. If you spend $45 of it a year from now, they can now deduct $45 from that liability because they’ve presented you with $45 of goods, but they still have that $5 obligation of providing future goods. Issue is, say you throw that card away and the company is never able to wipe off that $5 remaining liability. Across millions of cards, this would add up to a crazy figure that will grow infinitely and artificially inflate the company’s obligations, since the reality is 99% of these small balances will never get redeemed. Reducing the amount by some arbitrary value ($1/year or something) will prevent this infinite explosion of meaningless liabilities.

KindaMaybeYeah -18 points-17 points 6 months ago

Not hard with computers nowadays.

bankerman 18 points19 points 6 months ago

What in God’s green earth are you talking about?

r0xuS 4 points5 points 6 months ago

i'm not sure how gift cards work over there.. but if the remaining amount is not enough to pay something with, they deduct whatever is left from the end price..

DeLuxous2 1 point2 points 6 months ago

In my experience it's all or nothing. If the card doesn't cover a purchase with what's left, you have to find something cheaper to use it on. Good luck finding 6 cents of merchandise to spend on.

Metsubo 2 points3 points 6 months ago

What?! When and where did you experience this? I often spend MORE than a gift card and they've NEVER rejected my sale for it. That makes absolutely no sense because gift cards whole purpose is to bring in a customer and upsell them

Lorft 1 point2 points 6 months ago

Liability may not be the best way to think about it. The account a gift card goes under when purchased is something like "unearned service revenue". Emphasis on unearned. And I would view it as a liability in the same sense taking out a loan is a liability. You owe something. For gift cards, the customer has given you their money, but you have yet to actually provide them any service. You owe them service.

Once the gift card is redeemed, the revenue becomes "earned". I think generally speaking, estimates are just easier to use. And if using estimates follows GAAP (generally accepted accounting principals), companies aren't gonna waste time doing any more than what has to be done to not get in trouble.

Gift card revenue recognition is a pretty big deal, and recently had some changes made. The main topic it falls under is ASC 606, Revenue Recognition.

Mind you this is all exclusive to the US. I can't speak much for other countries.

JonnyBhoy 1 point2 points 6 months ago

They're not getting an extra dollar by taking the remaining money. It doesn't actually exist. Both examples are them writing it off.

[deleted] 0 points1 point 6 months ago

That was my OR statement. Literally what I said in the OR statement.

JonnyBhoy 1 point2 points 6 months ago

But the part where the company gets 11 doesn't ever happen.

dc4m 0 points1 point 6 months ago

It’s listed as unearned revenue, which is a liability not an asset

bh04 -2 points-1 points 6 months ago

If the card never expires though then you cant say you're ever ahead because they could still spend that card eventually. What if someone buys a card today and then in 10 years we change the entire system for cards and now you have to keep an outdated machine somewhere incase those people return with the card.

mattandalex420 3 points4 points 6 months ago

Look at it this way: You have $10, your friend has $10. They give you $10, and you give them yours. They buy something and have $0.50 left over. 90(?)% of the time, the $0.50 gets lost in their couch cushions, and your friend never finds it again. 10(?)% of the time, they find the $0.50 in their couch >2 years later and use it to buy something else.

It doesn’t sound right on an individual level, like how you described. But multiply it by 100,000, or however many people have balances remaining on gift cards, and all of a sudden you have a couch with $45,000 of loose change lost in it that’s never going to be found.

For accounting reasons, the firm has to assume that it’s possible that everyone finds their $0.50 and decides to spend it, and set aside $45,000 just in case. But in reality, that $45,000 (or whatever the actual balance of unused gift cards is) will never be spent, and is lost forever in the couch cushions.

The amount of lost money (the % of remaining balances that stands no chance of ever being spent) only increases over time. The firm will have to keep “putting aside” more and more money that will never actually become available to be spent.

It’s certainly a fair argument that this is something the firm has to accept if they choose to issue gift cards (and i’m not trying to definitively say whether this policy should be illegal or not), but it isn’t quite the same as what you’re describing.

Gott2007 0 points1 point 6 months ago


The thing is, they aren’t issuing anything. They’re selling gift cards, and at the end of the day, companies are very happy to sell them because they know that people won’t spend the entire amount and they’ll end up making a profit off of that. All of a sudden that profit isn’t enough?

rested_green 1 point2 points 6 months ago

They can't count it as profit.

Any amount still on your gift card is a debt that they owe you. If their cards don't expire, they have to act as if every bit of that debt issued to anybody is collectible at any time, and so have to (or else risk a number of consequences) maintain at least that much in fluid assets at all times. T

hat's money they can't spend, can't invest, can't use to grow or produce. It's effectively tied up.