S & H Green Atamps
Business and Management
Submitted By gilly2294
S & H green stamps A case study in Financial Accounting
By Gil Rubinstein I.D 302123427
Revenue recognition is recorded when the following conditions are satisfied 1. An exchange transaction has taken place – in this case, the stamp has been given to the customer by the grocer and the grocer has paid S&H for the stamps within a month. 2. The earnings process is complete – in this case, the stamps have been redeemed for goods at an S&H warehouse (or have expired. No details were given regarding the expiration of stamps).
When payments for the stamps are made, S&H should debit the cash account and open a liability account (i.e. deferred revenue / unearned revenue / unredeemed stamp liability etc’) and credit this account for the amount paid by the grocer.
In a future time period, when a grocer’s customer redeems his stamps for goods at an S&H warehouse, S&H should debit the liability account (i.e. deferred revenue) for the value of whatever the customer has chosen to take (assuming the stamps have serial numbers and all stamps have been paid for by the grocer) and record the amount as revenue.
The expenses that are associated to customers redeeming goods should be recorded at the time revenue is recorded - according to the matching principle.
Assuming the stamps have some sort of expiration time period, S&H should credit the revenue account when a certain stamp has expired and has of course been recorded in the past in the applicable liability account.
An afterthought: I reckon that S&H has probably made millions in unredeemed stamps. Today, sites like “Groupon” have based their business models on this idea (the business of unredeemed coupons/vouchers/gift…...