Points Liability: What It Means and How to Account for It

By Alva Chew · Updated 2026-11-03

Definition Points liability is the value of rewards you still owe members for points they have earned and not yet redeemed. Under IFRS 15 and ASC 606, part of each sale is set aside as a contract liability for those points and moves into revenue as members redeem. You size it from the points outstanding, what each point is worth and how many you expect to be spent.

What is points liability?

Points liability is the reward you owe your members at a point in time. Every point a customer has earned and not yet spent is a promise to give something back. Added together across all members, those promises are your points liability.

It grows when you issue points and shrinks when members redeem them. How fast it grows depends on your earn rate. How fast it shrinks depends on how many members spend their points, which is your redemption rate.

How do the accounting standards treat it?

The two main revenue standards are IFRS 15 (used in most countries) and ASC 606 (US GAAP). They treat points given with a sale as a separate promise to the customer, which the standards call a material right. IFRS 15 replaced the older IFRIC 13 on customer loyalty programmes, according to the IFRS Foundation’s IFRS 15 page. In plain words:

Part of the sale price goes to the points. You split each sale between the goods sold and the points, using what each is worth on its own.
The points’ share is a liability. It is not revenue yet, because you still owe the reward.
It becomes revenue as points are redeemed. Each redemption releases part of the liability into revenue.
Expected breakage is spread along the way. Points you expect never to be used are recognised in step with the points that are used. Our page on breakage covers this in detail.

PwC’s revenue guide, on ASC 606, uses a hotel example and concludes that “the points provide a material right to customers that they would not receive without entering into a contract”. It then keeps a contract liability for the consideration allocated to the remaining points. The same guide says a business should keep checking its own redemption history and update its breakage estimate.

BDO makes the same point for restaurants in its 2018 article on ASC 606: “The amount allocated to the points earned is deferred until the loyalty points are redeemed or expire.”

Item	Figure
Sale used in BDO’s example	US$100,000
Recognised as revenue at the sale	US$91,324
Deferred for the points	US$8,676

Source: BDO, ASC 606’s Impact on Loyalty Programs: Redemption is Key, 6 December 2018.

A worked example

A café sells US$50,000 of drinks and food in a month. It issues 50,000 points, each worth US$0.05 as a reward. It expects 40,000 of those points to be redeemed.

Step	Calculation	Amount
Stand-alone value of the points	40,000 expected × US$0.05	US$2,000
Share of sales allocated to points	US$50,000 × 2,000 ÷ 52,000	US$1,923
Revenue at the time of sale	US$50,000 − US$1,923	US$48,077
Points liability at the end of the month	Same as the share allocated	US$1,923
10,000 points redeemed (a quarter of the expected 40,000)	US$1,923 × 10,000 ÷ 40,000	US$481 moves to revenue
Points liability after those redemptions	US$1,923 − US$481	US$1,442

The figures are rounded to the dollar. Your accountant will choose the method for your business, and the real numbers depend on your standard. Small businesses on local standards or cash accounting may treat points more simply.

How do you keep the liability small?

A large liability is not a problem in itself. It shows members are earning. It becomes a cost question when the value per point is high compared with what a sale earns. These steps keep it in proportion:

Set the earn rate with the liability in mind. Work out what each point costs you in rewards before you fix the rate. Our guide to setting a points earn rate covers how to choose it.
Keep point values stable. If you change what a point is worth, the liability changes with it, and members notice.
Read the balance sheet monthly. Points outstanding, value per point and the share redeemed give you the liability in a few minutes.

For the wider cost picture, see how much a loyalty program costs. A points-based loyalty program is also the easiest kind to value, because every point has one price.

How Gimify fits

Gimify keeps one points balance per member across every outlet, so a member’s points are a single balance rather than separate ones for each branch. Points are earned in proportion to the purchase amount.

Questions owners ask

What is points liability in simple terms?

It is the reward you have promised and not yet paid. If members hold points that will buy US$2,000 of free items, you carry that promise on your books until they spend the points or the points lapse.

Is points liability the same as deferred revenue?

Under IFRS 15 and ASC 606 it is the same thing in practice. The part of a sale allocated to points is held as a contract liability, often called deferred revenue, until the points are redeemed.

How do I calculate it?

Take the points outstanding, multiply by the value of one point, then reduce by the share you expect never to be redeemed. Under the standards the starting number is the share of each sale allocated to the points, not the full face value.

Does the liability change when I revise my redemption estimate?

The revised estimate changes how the remaining liability is released as revenue. PwC's guide says the stand-alone selling price first allocated to the points should not be adjusted.

Do I need to record points liability if I am a small business?

IFRS 15 and ASC 606 apply to businesses reporting under full IFRS or US GAAP. Many small businesses use simpler local standards or cash accounting. Ask your accountant which rules apply to you.