Breakage (Accounting)
Encyclopedia
Breakage is a term used in accounting to indicate gift cards that have been sold but never redeemed. Revenue from breakage is almost entirely profit
, since companies need not provide any goods or services for unredeemed gift cards.
Breakage is a term used in sales, distribution, and multi-level marketing organizations to indicate commissions that are lost for the failure to meet certain conditions or requirements. Revenue from breakage is almost entirely profit as commissions lost for failure to meet those conditions or requirements can never be recovered.
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 jurisdictions, such as California
, Connecticut
, Massachusetts
, and Ontario
have deemed such regulations illegal.
Some companies have been criticized for using estimated breakage to improve their revenue numbers.
Profit (accounting)
In accounting, profit can be considered to be the difference between the purchase price and the costs of bringing to market whatever it is that is accounted as an enterprise in terms of the component costs of delivered goods and/or services and any operating or other expenses.-Definition:There are...
, since companies need not provide any goods or services for unredeemed gift cards.
Breakage is a term used in sales, distribution, and multi-level marketing organizations to indicate commissions that are lost for the failure to meet certain conditions or requirements. Revenue from breakage is almost entirely profit as commissions lost for failure to meet those conditions or requirements can never be recovered.
Regulations and 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 unredeemed cards. Retailers oppose such laws, because it pays for the expense of issuing and accounting for the card, only to have the value on the card confiscated by the government.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 jurisdictions, such as California
California
California is a state located on the West Coast of the United States. It is by far the most populous U.S. state, and the third-largest by land area...
, Connecticut
Connecticut
Connecticut is a state in the New England region of the northeastern United States. It is bordered by Rhode Island to the east, Massachusetts to the north, and the state of New York to the west and the south .Connecticut is named for the Connecticut River, the major U.S. river that approximately...
, Massachusetts
Massachusetts
The Commonwealth of Massachusetts is a state in the New England region of the northeastern United States of America. It is bordered by Rhode Island and Connecticut to the south, New York to the west, and Vermont and New Hampshire to the north; at its east lies the Atlantic Ocean. As of the 2010...
, and Ontario
Ontario
Ontario is a province of Canada, located in east-central Canada. It is Canada's most populous province and second largest in total area. It is home to the nation's most populous city, Toronto, and the nation's capital, Ottawa....
have deemed such regulations illegal.
Some companies have been criticized for using estimated breakage to improve their revenue numbers.
External links
- Fighting Over the Balance Left on Unused Gift Cards, via WSJ
- Best Buy Accounting for Breakage
- The clear war by Kevin Mattice