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Universal School Supply Retailer

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Submitted By jawaker
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Universal School Supply Retailer, Inc (“USSR”) is a retailer of clothing, equipment, supplies, and other products targeted at students from grade school to college level. USSR is offering a promotion during August in which customers who spend a minimum of $100 will receive a $20gift card that can be applied to their next purchase at USSR. These gift cards expire on November 1 of the current year and cannot be redeemed for cash. The main issues involved in this situation are when to recognize the revenue associated with the gift cards and how to record the transaction. These issues are addressed by multiple sections of GAAP, including the following:
605-50-20
605-50-25
405-40-30
460-10-25
065-50-25-7
• In ASC 605-50-20 it defined the cash consideration which includes cash payments and credits that the customer can apply against trade amounts owed to the vendor… In this case, USSR is offering its customers a 20$ gift cards, which are only redeemable if the customer spends over $100 during the month of August. According to ASC 605-50-25-7 A vendor may offer a customer a rebate or refund of a specified amount of cash consideration that is redeemable only if the customer completes a specified cumulative level of revenue transactions or remains a customer for a specified time period. The vendor shall recognize the rebate or refund obligation as a reduction of revenue based on a systematic and rational allocation of the cost of honoring rebates or refunds earned and claimed to each of the underlying revenue transactions that result in progress by the customer toward earning the rebate or refund… In this case USSR offer a promotion for back-to-school and should recognize the rebate or refund obligation as a reduction of revenue. The reduction amount of revenue should be realize based on the estimated number of customer that will come back and use the 20$ gift card. ASC

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