Discussion For Accounting: Please Use The Book For Su 557602

Discussion For Accounting Please Use The Book For Survey For Aaccount

BeneMart, a large national retail chain, is nearing its fiscal year-end. It appears that the company is not going to hit its revenue and net income targets. The company's marketing manager, Ed Mellon, suggests running a promotion selling $50 gift cards for $45. He believes that this would be very popular and would enable the company to meet its targets for revenue and net income. What do you think of this idea?

Please research and explain the reasons Ed believes that by selling the gift cards at $45 would meet the targets for revenue and net income. Provide examples. How would you respond to Uriah Porter? Assuming BeneMart's fiscal year ends in December, this plan could work out to a very good benefit for the company. The holidays are a time when people frankly throw money around with less regard than normal. This can also do wonders for a company's image and expand their customer base by basically giving people $5 worth of product for free.

I know from personal experience that having a gift card at the holiday time means I can buy something expensive I have wanted to get for much cheaper because of the card. This also means that I am giving the company a profit even with the $5 free. How would you respond to Katherine Lindsey? Hello Prof. and Peers, BeneMart, a large national retail chain, is nearing its fiscal year-end and the company seems to be having some issues involving its revenue and net income targets. Marketing manager, Ed Mellon suggested running a promotion selling $50 gift cards for $45. He thinks that this would be very popular and would help the company to meet its target for revenue and net income.

On the other hand, I disagree with Mr. Mellon's idea. I think that it may help the revenue target but it just might hurt the income net target if the cards don't sale. I think that it will only work if the cards are sold and used right away. The cards will not be a result of revenue until they are sold and used. If they are not sold and used they are considered a liability. In order for growth, you must profit.

References

• Kimmel, P. D., & Weygandt, J. J. (2016). Survey of Accounting, 1st Edition. Purdue University Global Bookshelf.

Paper For Above instruction

In approaching BeneMart’s promotional strategy involving gift cards, it is essential to analyze both the potential benefits and pitfalls from an accounting perspective. The proposal to sell $50 gift cards at $45 aims to boost revenue and help meet annual financial targets, but it raises questions about revenue recognition, liabilities, and profitability.

The core idea behind Mellon’s suggestion is that offering a $50 gift card at a $5 discount attracts more customers, thereby stimulating sales volume. This is rooted in the concept of promotional discounts as marketing tools that can incentivize customer purchases during critical periods. When the gift cards are sold at $45, BeneMart recognizes the price received as revenue immediately because the sale transaction occurs at that point. The company’s cash inflow increases, with the $45 being accounted as revenue, while the face value of $50 is the potential liability until the card is redeemed.

From an accounting standpoint, the sale of gift cards is initially recorded as deferred revenue or a liability because the company has an obligation to provide goods or services in the future. When customers redeem the gift cards, BeneMart will then recognize the revenue associated with the sale of items purchased using the gift card. The difference between the face value of the gift card and the sale price ($5 discount) represents an income motive—additional revenue that could contribute to meeting targets. The discount acts as an incentive, driving sales volume and potentially increasing the company's overall revenue and profit margin.

Additionally, selling gift cards at a discount can have positive short-term effects on cash flow and revenue figures, especially during the holiday season, which is typically a peak shopping period. Consumers are motivated by perceived value, and the $5 difference can be seen as a marketing expense designed to attract and retain customers. For example, in retail, it is common to see such promotions designed to generate immediate cash inflow and enhance revenue figures, even if the actual profit per sale might be relatively modest.

However, there are risks involved. If the gift cards not only are sold but also remain unredeemed, the company faces unredeemed gift card liabilities, which are classified as current liabilities until usage. This scenario might result in a significant amount of unredeemed gift card balances, which pose a liability that impacts financial stability. Moreover, unethical or overly aggressive discounting might cannibalize higher-margin sales or lead to a long-term decline in profit margins. For instance, a consumer might wait for sales promotions rather than purchase at full price, eroding the company's overall profitability.

Responding to Uriah Porter’s optimism, it is true that holiday seasons tend to increase consumer spending, often providing companies with a short-term boost. Promotional strategies like discounted gift cards during these periods leverage consumers' increased willingness to spend, which might help the company attain its revenue and profit targets. Nonetheless, from an accounting perspective, companies must ensure that revenue recognition aligns with applicable standards such as ASC 606 (Revenue from Contracts with Customers). This standard stipulates that revenue should only be recognized once the goods or services are transferred, and the timing of recognizing revenue from gift card sales depends on customer redemption patterns.

Furthermore, the company's obligation to honor undeposited gift card balances remains as a liability until they are redeemed. If a significant portion of these gift cards remains unredeemed indefinitely, BeneMart might be liable for the unredeemed amounts, which could impair the net income calculations if not properly estimated and recorded as an allowance for breakage. This could reduce gross profit figures if profits are already recognized at sale rather than at redemption.

In conclusion, while Mellon's strategy might offer short-term advantages by increasing cash flow and apparent revenue, it must be implemented carefully, accounting for the timing of revenue recognition and liabilities. Properly managing the risks of unredeemed gift card balances and avoiding overly aggressive discounts is essential to ensure that the strategy aligns with sustainable profitability and compliance standards. A comprehensive analysis suggests that promotions should be paired with robust tracking and provisions for breakage to mitigate potential negative effects on net income.

References

• Kimmel, P. D., & Weygandt, J. J. (2016). Survey of Accounting, 1st Edition. Purdue University Global Bookshelf.