Revenue Recognition of Gift Cards
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We recognize a liability upon the sale of our gift cards and recognize revenue when these
gift cards are redeemed in our restaurants or on our website. Based on our historical gift
card redemption patterns, we can reasonably estimate the amount of gift cards for which
redemption is remote, which is referred to as “breakage.” Breakage is recognized in
proportion to historical redemption trends and is classified as revenues in our
consolidated statement of operations. Utilizing this method, we estimate both the amount
of breakage and the time period of redemption. If actual redemption patterns vary from
our estimates, actual gift card breakage income may differ from the amounts recorded.
(The Cheesecake Factory Inc., 2010)
They reiterate some of this information, and include some additional information in their general
Revenue Recognition section:
We recognize a liability upon the sale of our gift cards and recognize revenue when these
gift cards are redeemed in our restaurants or on our website. Based on our historical gift
card redemption patterns, we can reasonably estimate the amount of gift cards for which
redemption is remote, which is referred to as “breakage.” Breakage is recognized in
proportion to historical redemption trends and is classified as revenues in our
consolidated statement of operations. We recognized $2.7 million, $3.1 million and $3.1
million of gift card breakage in fiscal years 2010, 2009 and 2008, respectively.
Incremental direct costs related to gift card sales, including commissions and credit card
fees, are deferred and recognized in earnings in the same pattern as the related gift card
revenue.
(The Cheesecake Factory Inc., 2010)
Between the two sections, and the section of their Notes detailing what constitutes Cheesecake
Factory’s other accrued expenses, we can find out everything needed about their gift card
policies except for exactly how long they wait before recognizing breakage income, and how
they handle any possible escheatment laws. (The Cheesecake Factory Inc., 2010)
More often than not companies disclose their gift card policies in the way that
Amazon.com does, with a simple paragraph in the notes:
Included in “Accrued expenses and other” at December 31, 2010 and 2009 were
liabilities of $503 million and $347 million for unredeemed gift certificates. We reduce
the liability for a gift certificate when it is applied to an order. If a gift certificate is not