Who is Truett Cathy? Truett Cathy was the founder and chairman of Chick-fil-A, Inc.
The correct answer is choice c: Net income is understated. Current liabilities and, hence, total liabilities are understated because of the debt was never recorded.
Rent for this period has not been recorded so the expense on the income statement is understated, which makes the reported net income too high. The February 26,balance sheet for Best Buy Co.
By purchasing such cards, customers obtain the right to a specified amount of goods or services.
How does a company such as Best Buy account for the thousands of gift cards that it sells each year? As stated previously, a liability represents a probable future sacrifice of an asset or service. By selling a gift card, a company has created an obligation to the customer that must be reported.
Or, perhaps, some service is due to the cardholder such as the repair of a computer or a massage. To the seller, a gift card reflects a liability but one that is not normally settled with cash.
Undoubtedly, the most common type of gift card in the world is a postal stamp. When bought, the stamp provides a person with the right to receive a particular service, the mailing of a letter or package. Revenue cannot be reported at the time of sale; the earning process is not yet substantially complete.
No asset or service has been conveyed to the customer. Rather, as shown in Figure Upon redemption, the liability is satisfied and the revenue is recognized.
This exchange is reported in Figure A perpetual inventory system is used in this example to demonstrate the impact on inventory and cost of goods sold. Some gift cards are never redeemed. They might be lost or just forgotten by their owners.
One reason that gift cards have become so popular with businesses is that some percentage will never be redeemed. They will be misplaced, stolen, or the holder will move away or die.
Perhaps the person simply does not want the merchandise that is available. In such cases, the seller received money but has never had to fulfill the obligation. The entire amount of cash from the sale of the gift card is profit.
For the accountant, a question arises as to the appropriate timing of revenue recognition from such anticipated defaults. The earning process is never substantially completed by a redemption.
In theory, a company recognizes this revenue when reasonable evidence exists that the card will never be used by the customer. Practically, though, determining this precise point is a matter of speculation. Companies typically report the revenue from unused gift cards at one of three possible times: When the cards expire if a time limit is imposed.
After the passage of a specified period of time such as eighteen months or two years. In proportion to the cards that are actually redeemed.
To illustrate this final option, assume that a company sells thousands of cards. We determine our gift card breakage rate based upon historical redemption patterns. Of this amount, 60 percent are redeemed before the end of the year and properly recorded. Another 4 percent expired because of time limitations.
The others remain outstanding at the end of the year. The accountant for BBC did not realize that the time limitations had been reached so made no entry for the 4 percent.We help you understand more about Scrip fundraising products and unique fundraising ideas for your organization.
Valve just added digital gift cards to Steam, allowing you to send money directly to a friend’s Steam Wallet. You can also use the same trick we used adding Steam Wallet funds to send almost any amount—not just the preset values..
Choosing a Gift Card. You can pick a gift card from the the Select Gift Card page, also accessible from Steam’s front page. I asked them to write a toast or a blessing on the back of the invitation card and send it back. I said. "Please no gifts, gift cards only" and I specified $25 maximum, so no one felt overwhelmed (especially since the wedding is 3 weeks away).
Scott Olson / Getty Images Gift cards to electronic stores are a great gift because major stores like Best Buy and Fry's offer a wide variety of items to purchase.
A $15 gift card can buy a game, new CD, cell phone cover, or even magazines. When you swipe a debit (check) card as debit at a pump and enter your pin number (on-line debit), a message is sent through a network to your financial institution for a preauthorization amount between $$ depending on the price of gas.
The Card is a Visa Gift Card that can be used to purchase merchandise and services anywhere Visa debit Cards are accepted in the United States.