How does Black Bear Diner recognize revenue from gift card breakage?
Black_Bear_Diner Franchise · 2025 FDDAnswer from 2025 FDD Document
[Item 23: RECEIPT]
Gift Cards: The Company's gift cards carry no dormancy, inactivity or service fees, and have no expiration date. The gift cards are sold primarily at restaurant locations and through the Company's website, and are redeemable at all restaurant locations. The Company has gift card service agreements to receive and hold the proceeds of gift card sales until a customer uses the card to purchase merchandise or services from a participating restaurant location. When a customer uses a gift card to purchase merchandise or services from a participating restaurant location, the participating restaurant location is obligated to accept the gift card as payment for its goods or services, and the Company is obligated to reimburse the participating restaurant location for the sales price of the goods or services purchased with the gift card. The Company is primarily liable to the customer for the value of the gift card until the card is redeemed. When the gift cards are issued, a liability is recorded by the Company. When the gift cards are redeemed, there is an offset of the liability account. Revenues (and related expenses) are recognized by the participating restaurant location upon exchange for goods and services. The Company recognizes revenue from gift card breakage in proportion to the pattern of related gift card redemptions.
Source: Item 23 — RECEIPT (FDD pages 56–243)
What This Means (2025 FDD)
According to the 2025 Black Bear Diner Franchise Disclosure Document, Black Bear Diner recognizes revenue from gift card breakage in proportion to the pattern of related gift card redemptions. Black Bear Diner's gift cards carry no dormancy, inactivity, or service fees and have no expiration date. These gift cards are sold primarily at restaurant locations and through the company's website and are redeemable at all restaurant locations.
When Black Bear Diner issues gift cards, the company records a liability. When the gift cards are redeemed, the company offsets the liability account. The participating restaurant location recognizes revenues (and related expenses) upon exchange for goods and services.
This accounting practice means that Black Bear Diner does not recognize revenue from unredeemed gift cards immediately. Instead, it recognizes this revenue over time as gift cards are redeemed, aligning the revenue recognition with the actual usage of the gift cards. This approach is a common practice in the restaurant and retail industries, as it provides a more accurate representation of when the company has earned the revenue associated with the gift card sales.