Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

3. Accrual Accounting Concepts

Revenue Recognition and Expense Recognition

Financial Accounting

3. Accrual Accounting Concepts

Revenue Recognition and Expense Recognition

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Multiple Choice

Revenue for gift card breakage should be recognized:

When it becomes remote that the gift card will be redeemed

At the time the gift card is sold to the customer

When the customer uses the gift card to purchase goods or services

Only when the gift card expires

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Verified step by step guidance

Understand the concept of gift card breakage: Gift card breakage refers to the revenue recognized from unused gift card balances when it becomes unlikely that the card will be redeemed.

Review the accounting principle for revenue recognition: Revenue should be recognized when it is earned and realizable. For gift card breakage, this occurs when the likelihood of redemption becomes remote.

Analyze the options provided: Evaluate each option to determine which aligns with the principle of recognizing revenue when it is earned and realizable.

Eliminate incorrect options: For example, revenue is not recognized at the time of sale because the obligation to provide goods or services still exists. Similarly, revenue is not recognized only when the card expires, as expiration is not always necessary for breakage recognition.

Select the correct option: The correct answer is 'When it becomes remote that the gift card will be redeemed,' as this is the point at which the company can reasonably recognize the breakage revenue.