Revenue Recognition Question

Jul 10, 2011
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Hi, I have a question about what GAAP says about a certain situation. I'm not sure even what this would be called to look it up which is why I'm having a difficult time. Let's suppose we have a company that sells gift cards on behalf of retailers. (Like buying a Best Buy gift card from Amazon). In a month they receive $100,000 from consumers buying their gift cards. They charge a fee of 5%, and at the end of each week, they give the money to the retailer (besides their fee). Would they report gross revenue as being $100,000 since they had the money for a week or would their reported gross revenue be $5,000? I've come up with that this may be a revenue recognition thing, but I'm not exactly sure. What would this situation be called (I need to find a source so I can be sure and also look more into this)? And what do you think they should do and based on what?




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May 12, 2011
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United States
Issue is part of the ongoing Revenue Recognition project of FASB. So you can look for guidance there (but still developing). Otherwise you have to look to Practice and look at the acctg policies of companies that issue such cards. Typically acctg is no revenue recognized until card used (which makes sense)

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