Academic journal article Journal of the International Academy for Case Studies

Accounting for Retailer-Issued Gift Cards: Revenue Recognition and Financial Statement Disclosures

Academic journal article Journal of the International Academy for Case Studies

Accounting for Retailer-Issued Gift Cards: Revenue Recognition and Financial Statement Disclosures

Article excerpt

CASE DESCRIPTION

The primary subject matter of this case concerns the appropriate accounting for and disclosure of gif t card revenue on the financial statements. Secondary issues examined include materiality, the quality of reported earnings, and contingent liabilities. Underlying these specific issues is the general issue of accounting policy choice and its effect on the comparability of reported financial results across companies. The case requires students to find and review authoritative accounting literature (including appropriate professional standards) and relevant financial filings (for example, Forms 10-K) for several companies. This case has a difficulty level of three, four, or five. The case is designed to be taught in two class hours and is expected to require five hours of outside preparation by students.

CASE SYNOPSIS

Using example disclosures from Best Buy Co., Inc. and other retailers, students learn about the use of gift cards and identify issues that arise in accounting for their issuance and redemption. Students also learn how accountants apply financial statement disclosure rules to new business practices as they emerge.

INSTRUCTORS' NOTES

Recommendations for Teaching Approaches

A good way to begin the case discussion is to ask students if they have purchased or received a gift card in the past year. If they received a gift card, ask them how quickly they redeemed it. About one-third of retail gift cards are redeemed within 30 days. You could ask if they have lost or misplaced the card. Other questions you can use include: Did they partially use the card so that some stored value still remains on the card? Did they choose not to use it for some reason?

15. Review Best Buy's (2008) financial statements or Form 10-K for fiscal 2008. Can you determine or estimate the amount that gift card sales contributed to that year's earnings? Was it more than $34 million? Approximately $34 million? Less than $34 million? Explain.

It was likely more than $34 million, but how much more is impossible to determine. …

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