If someone buys a $100 gift card from Target, does this $100 debt stay on their books until the card is redeemed, or do they have an algorithm that slowly depreciates this debt over time? Companies benefit from selling gift cards by assuming many will be lost/never redeemed, how do they know when they’ve achieved profit from these sales?
Assuming the gift cards have no expiration date, which many today don’t.
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>If someone buys a $100 gift card from Target, does this $100 debt stay on their books until the card is redeemed
Yes. There is a specific liability on their balance sheet (where you account for all of your assets and debts) associated with the gift cards. To them, it is no different than any other kind of debt – it is money they owe, so they know how to account for it.
>or do they have an algorithm that slowly depreciates this debt over time?
The accounts will have details on when various amounts expire. Modern enterprise resource planning (ERP) systems can account for billions of lines of data – tracking these cards individually is not a big challenge.
>Companies benefit from selling gift cards by assuming many will be lost/never redeemed, how do they know when they’ve achieved profit from these sales?
Gift cards are just as profitable as normal sales. Rarely are discounts issued for gift cards – spending $100 in gift cards is just as good as spending $100 in cash because it is the exact same thing – you just got the cash a few months earlier when someone bought the gift card.
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