This is a bit of a dry post but I find it interesting. I read a long article on a tax related site about how gift cards form non banks are being viewed and all the varying ways that companies are dealing with the accounting for these. If the gift cards are not issued by mastercard, visa or another large bank but rather by the merchant, the gift card is called a closed loop. This makes sense because only the merchant will know when the card is used or unused.
It is the unused cards that present so much trouble for the accounting departments. When can the companies assume that the gift cards will never be used. In the past, companies simply applied expiration dates and once these past they were clear to count the revenue. These expiration dates are being shot down state by state. So while the popularity of gift cards continues to sky rocket, the issue of dealing with cards that may or may not get used continues to plague companies. There is no fantastic solution to this. The companies simply have to look for patterns of gift card usage and build models off of these and how they don't get it wrong. They are happy to take the risk as the money from gift cards is simply too large to say no to!
Added on 07/19/2009
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