Hendrickson Thesis

| Revenue Recognition of Gift Cards | Complications of Breakage Income | | Matthew Hendrickson | May, 2011 |

Gift Cards are loved by both companies and customers. They are a large source of income and customers love their ease. However, regulation for reporting gift card income is something companies must pay close attention to. Companies must be concerned with recognition of breakage income as well as state escheatment laws. This paper will examine the current regulatory environment relating to gift card revenue as well as how companies are currently presenting this information to investors. |

Table of Contents
Introduction 3 General Facts about Gift Cards 4
Tax Accounting Implications 7 Recognition 7 Gift Card Companies 9 Escheatment Laws 10
Financial Accounting Implications 13 Recognition 13 Disclosure 15
Further Research 20
Conclusions 21
Works Cited 22

Introduction

“Gift cards have become an area of both opportunity and risk for retailers. They have come to provide a critical source of earnings, yet at the same time, the regulatory environment, including tax and financial reporting for gift cards, has become increasingly complex. The bottom line is that financial executives within the retail industry cannot afford to be blindsided by tax, regulatory and financial reporting changes in this area;” Giles Sutton, State and Local Tax (SALT) partner and national Retail Tax practice leader. (Grant Thornton LLP., 2011)

In the recent years gift cards and certificates have become immensely popular with both retailers and customers. Gift card sales for 2010 are currently estimated to have exceeded $200 billion, with $25 billion coming from holiday season spending. This can be compared to $24.1 billion in the 2009 holiday season and $24.9 billion in 2008. (Duff & Phelps Corp, 2011) The large amount of money that gift cards represent indicates that they must be clearly regulated from both a tax accounting and financial