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1. What is the Revenue Recognition Principle? How can the revenue recognition principle be followed when accounting for gift card revenue?

2. According to the article, retailers are making different calls on how to account for gift card sales/incentive programs in financial statements. Refer to the section in chapter 3 that discusses qualities of useful information. Which qualities of useful information does this practice complicate, and how?

3. The article states that Circuit City defers gift card revenue, but if a card is unused for 2 years, the company deducts $2 a month from the value of the card. What does it mean to defer revenue? What does the company then record when selling a gift card. If $2 a month is reduced from the value of an unredeemed card, what would the adjusting journal entry be to accomplish this?

4. Accountants seem to agree that when accounting for incentive programs, it is best to deduct the liabilities from the revenues. For example, customers can earn a $25 certificate for every $100 they spend. So, what a company has is $100 revenue from the sale of merchandise and a $25 liability to the customer on a future purchase. Accountants say the best thing to do is to reduce the revenue from the sale to $75 in order to account for the liability. Do you think this is the best method. Please describe a method of accounting for such incentive programs that you think is best. Why do you believe this is a good method?

5. Why does the article state that investors get hurt when companies offer gift cards/ generous incentive programs?

6. When deciding how to account for gift card revenue and incentive programs, which accounting principles must be considered?