Why do gift cards have an expiry date?

Gift cards are put on the balance sheet of the company as a liability. They have a debt in order to provide a product or service at a future date. Many gift cards are never redeemed but the company cannot know which cards are never going to be used. If they never expired then such debts would accrue over time into a large sum of debt which will never actually be called in.

Why is this a problem? Because the value of a company is determined in part by considering their assets compared to their debt. If you have $100 million in assets but owe $120 million in debt then your company isn’t really worth anything at all. So building up excess gift card debt which can never be paid off is something to be avoided.

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