What is referred to as unredeemed gift cards?

Unredeemed gift cards are commonly referred to as breakage. Breakage represents the portion of gift card sales that customers do not redeem. When customers purchase gift cards but do not use them within a certain time frame, the value of those cards remains with the issuing company instead of being spent. This can have a positive financial impact on businesses, as they can recognize this unredeemed amount as revenue after fulfilling certain accounting criteria.

In the context of financial reporting, breakage specifically refers to the expected amount of gift card sales that will never be redeemed, allowing the company to predict and manage its earnings more effectively. This is in contrast to liabilities, which represent obligations the company must settle, or assets, which reflect owned resources that hold economic value. While incentives relate to promotions or rewards offered to encourage customer behavior, they do not directly connect to the economic implications of unredeemed gift cards as breakage does.