Breakage (Accounting)
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Breakage is a term used in accounting to indicate gift cards that have been sold but not redeemed. Revenue from breakage is almost entirely profit, since companies need not provide any goods or services for unredeemed gift cards.
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[edit] Regulations & Controversy
US States have varying regulations about the accounting practices of unused gift cards. Some states consider unredeemed gift cards to be abandoned property, and as such lay claim to the value of undredeemed cards. Retailers oppose such laws, because a retailer may actually loses money on the gift card because it has to cover the expense of issuing and accounting for the card, but turns the value of the card over to the state.
Some retailers have also imposed conditions on gift cards, such as expiration dates or monthly service fees that periodically reduce the value of the gift card. However, some states, such as California, Connecticut, and Massachusetts, have deemed such regulations illegal.
Some companies have been criticized [1] for using estimated breakage to improve their revenue numbers.
[edit] See also
[edit] References
- ^ The Stalwart. Retrieved on 2006-09-17.
