USA Winnings

[jjohnson]

Hey all,

I recently started working for a company that operates a free to play internet poker site. Each month, winners of tournaments receive cash prizes. At the end of each month, we receive a csv file from the developers with a list of those who have won monetary prizes. For a person to actually claim the prize, they need to provide us with a name and address, which is not required to sign up to play. If a player does not provide the information within 6 months, they forfeit their prize.

Now for the question:

Currently, the amount of winnings indicated on the csv file each month is expensed and a payable is created. When the player sends and address, we remove the amount from the payable.

The problem I have with this, is it seems that around 15% of the winners never claim their prizes.Should the payable be deleted after six months, since they no longer retain rights to the prize? Also, this method seems to overstate expenses in each month. Should the expense not be recognized until the check is cut to send to the winner, thereby avoiding too much expense, but potentially not matching the expense to the correct period?

This is day two of my new job right out of college, and this one is just beyond me at the moment. Thanks for your help!

 

[kirby]

Should the payable be deleted after 6 months? Sure - your agreement with the player was that they had 6 months to claim it and they didn't. So , no winner winner, no chicken dinner! When should you record an expense - at the time that they earned the right to collect the prize - not when you pay it. As you said -- that matches better.

 

[bklynboy]

Kirby is correct that the expense gets created at the time the winners occur and not when it is paid. I would also point out that since not 100% of the prizes are collected you should estimate the portion of the liability that will not be paid and only set up a liability for the portion you expect to pay based on historical experience (refer to FAS 5 where the estimate is probable and estimatable). This estimate is reviewed periodically to see if a revision is needed.