Question

During 2013, customers purchased gift cards from lattebucks, all of which expire on december 31, 2015. at the end of 2014, some of the gift cards still have not been redeemed. how should the unredeemed gift cards be reported on lattebucks's 2014 year-end financial statements?

Answer 1

Answer:

The unredeemed gift cards should be reported as current liability on the balance sheet

Explanation:

Here in this question, we are interested in knowing how purchased but yet to be redeemed gift cards, having an extra year of validity should be recorded on the company’s present year-end financial statements.

The correct answer to this is that the yet to be redeemed gift card is to be recorded as a current liability on the present year balance sheet. When we talk of current liabilities, we are simply referring to those amounts in businesses which we are going to pay creditors within the year.

Although the gift card has been purchased, without redeeming yet still means there are some amount that is still yet to be paid out to the creditors. Now, since there is still a window of a whole full year before the creditors might no longer access the payment, then we can record the gift cards amount as current liabilities within the year which we are in since the payment is due to be paid within a whole full year.