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Best Buy Cash Flow Statement

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Best Buy, incorporated 1966 in Minnesota, is a retail chain of over 1500 stores and an online presence that is focused on selling consumer electronics and appliances. Best Buy’s business is seasonal: a higher proportion of its revenue and earnings is generated in the fourth quarter which coincides with the holiday shopping season in US, Canada and Mexico. Best Buy sells gift cards and e-gift cards through their websites and selected third parties and retail stores. Gift Card Transactions: When a gift card is purchased, cash or payment otherwise is accepted and the individual card holds a value equal to the payment. The gift card can be readily used for purchasing merchandise or services at Best Buy stores and online at the value with which …show more content…

This would only be necessary for the amount of new gift card purchases and not the entire current liability balance as the starting cash balance at the beginning of the statement would reflect the previous adjustments. The revenue line of the income statement would not include the value of the purchased gift card at the initial time of purchase but instead would include the revenue streams associated with subsequent redemptions of the gift card for purchases of merchandise or services. Best Buy recognizes revenue from gift cards for one of two reasons : - A Customer redeems the gift card and makes an actual purchase; or - The gift card is unlikely to be redeemed by the customer and Best Buy determines that it’s not legally obligated to remit the value of the unredeemed gift cards to relevant jurisdictions, known as Gift card breakage. Purchases using a gift card as a form of payment credit a revenue account at the value of the purchase and debit Unredeemed Gift Card Liability for the amount that was funded using a gift …show more content…

According to a PriceWaterhouseCoopers bulletin on abandoned/unclaimed property as it pertains to gift cards, between 5-15 percent of gift cards will never be redeemed among the thousands of gift card transactions each year. With all companies selling gift cards of over $100 billion total annually , this is no small number to account for. This amount of never-to-be-redeemed gift card value is referred to as gift card breakage. Very important to companies like best buy, with $381 million in unredeemed gift card liabilities , is the eventual revenue recognition of this gift card breakage. Every company has its own policy regarding recognition of this liability, however Federal and state laws also dictate appropriate handling of gift card programs. For example, in Minnesota (where Best Buy is incorporated) gift cards may never expire, even though Federal law allows companies to list expiration dates at least 5 years from initial purchase of or last reloading of value on a gift

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