Unredeemed Points on the Books: Points Liability for Small Businesses

By Alva Chew · Updated 2026-11-06

In short Unredeemed points are a promise you still owe, so loyalty points accounting treats part of each sale as deferred until members spend their points. A small shop can estimate the amount from three numbers in its own records: points outstanding, the dollar value of one point and the share you expect to be redeemed. Whether you must book it depends on your accounting standard, so confirm that with your accountant before year end.

What does loyalty points accounting ask of a small business?

Every point a member has earned and not spent is something you may have to give back. Our glossary entry on points liability defines the term and walks through the standards. This guide goes further. It shows the numbers for a small shop, how to build the estimate from your own records, when it is worth the effort and what to bring to your accountant.

The short version of the rules: IFRS 15 and ASC 606 treat points earned with a purchase as a separate promise. Part of the sale price is set aside and held as a liability until the points are redeemed. The IFRS Foundation’s page says IFRS 15 replaces IFRIC 13 Customer Loyalty Programmes, and that it applies to annual reporting periods beginning on or after 1 January 2018.

What does the standard example look like?

BDO’s 2018 article on restaurants gives the cleanest published example.

Item	BDO’s example
Goods and services sold	US$100,000
Points earned	10,000
Share expected to be redeemed	95%
Recognised as revenue in the period	US$91,324
Deferred until the points are redeemed	US$8,676

Source: BDO, ASC 606’s Impact on Loyalty Programs: Redemption is Key, 6 December 2018, re-read 6 November 2026.

BDO also says breakage “will be recognized as revenue over the same period and on the same pattern that loyalty points are redeemed.” The example is for a large reporter. A small shop can follow the same logic with smaller numbers, which is what the next section does.

What does a small café’s year look like?

The figures below are our own illustrative arithmetic, not data from a real business. A café sells US$300,000 in a year. Members account for US$180,000 of that and earn 1 point per US$1, so 180,000 points are issued. Members can redeem 100 points for US$5 off, so each point is worth US$0.05.

By year end, members have redeemed 90,000 points. The café expects 75% of all points issued to be redeemed eventually.

Step	Calculation	Result
Points issued	US$180,000 × 1 point	180,000
Points redeemed so far	From the points ledger	90,000
Points outstanding	180,000 − 90,000	90,000
Face value of outstanding points	90,000 × US$0.05	US$4,500
Points expected to be redeemed in total	180,000 × 75%	135,000
Stand-alone value of those points	135,000 × US$0.05	US$6,750
Share of member sales allocated to points	US$180,000 × 6,750 ÷ (180,000 + 6,750)	US$6,506
Released to revenue by redemptions so far	US$6,506 × 90,000 ÷ 135,000	US$4,337
Liability still on the books	US$6,506 − US$4,337	US$2,169

Three numbers are worth reading side by side. The face value of unspent points is US$4,500. The liability under the standard method is US$2,169. The difference comes from two things. The standard allocates only part of each sale to points, and it assumes some points will never be spent. Your accountant will choose the exact method, and the result depends on the standard you report under.

For cash planning, a second figure is more useful. Points you still expect to be redeemed are 135,000 − 90,000 = 45,000. At US$0.05 each, that is US$2,250 of rewards you expect to hand out against future sales. That is the number to compare with next quarter’s margin.

How do you estimate what you owe from your own data?

You need records, not a model. Pull these from whatever system holds your points balances:

Points issued each month. Total points added to member accounts.
Points redeemed each month. Total points spent on rewards.
Points outstanding today. The sum of all member balances. It should equal issued minus redeemed minus any voided points.
The dollar value of one point. The price of your cheapest reward divided by its points cost. In the café example, US$5 ÷ 100 points.
Redemption by cohort. For each month’s issued points, how many have been redeemed to date.

Step 5 gives you the redemption estimate. Suppose points earned in January 2025 are 80% redeemed after 12 months and the curve has flattened. Points earned in February 2025 are 78% redeemed. A starting estimate near 80% for recent months is reasonable. Where you have under a year of history, use a lower, cautious redemption rate and revise it as data arrives.

PwC’s revenue guide says the breakage assessment “should be updated at each reporting period.” It adds that when you revise the estimate you should not change the stand-alone selling price originally allocated to the points. Keep a dated note of the estimate you used each period so the next one starts from a record.

If you cannot estimate breakage at all, PwC says to apply the variable consideration constraint, including recording any minimum breakage amount. Breakage you do not expect “should be recognized as revenue when the likelihood of the customer exercising its remaining rights becomes remote.”

Source: PwC Viewpoint, unexercised rights, re-read 6 November 2026.

Two settings change the estimate more than anything else. A reward priced close to what members earn gets redeemed faster, which pushes the expected rate up. An expiry rule removes points on a date, which affects when breakage can be recognised. Our guides on setting an earn rate and on whether points should expire cover the programme side.

When does it matter for a small shop?

For many owners the answer is “not yet”, but three situations change that.

Your accounting method requires it. Under US tax rules, the cash method is generally open to a corporation or partnership whose average annual gross receipts for the 3 prior tax years were US$26 million or less, indexed for inflation. IRS Publication 538 gives that test, and the copy we read was revised in January 2022, so check the current indexed figure. A business below the threshold may use the cash method for tax. Tax method and financial-statement standard are separate questions, so ask your accountant about both.

Someone else reads your accounts. A bank, an investor or a buyer may expect statements under US GAAP or IFRS. If so, the points deferral applies to the statements they see.

Your balance is growing faster than your sales. If points outstanding rise month after month while redemptions stay flat, the promise is growing. That is a margin question even when no standard asks you to book it. The redemption rate tells you whether it is happening.

A fourth, softer trigger is a change in what a point buys. If you raise the value of a point, every outstanding point is now worth more. Our page on point value shows how to work out what each point costs you.

Source for the tax test: IRS Publication 538, Accounting Periods and Methods, revision of January 2022, read 6 November 2026.

What should you ask an accountant?

Bring the five records above and these questions:

Which standard do my financial statements follow, and does it treat points as a deferral?
Do I book the liability monthly, quarterly or only at year end?
What redemption rate should I use while I have under a year of history?
How should I treat points voided or expired under my terms?
If I change the value of a point or add a reward, how do I treat the points already outstanding?
Is any of this different for tax than for my management accounts?

Ask for the answer in writing with a worked line of numbers from your own data. A one-page method you can repeat each month is worth more than a one-off figure.

Does a points-only programme help?

It does, in a practical way. A programme with one currency has one value per point, so the liability is points outstanding times that value, adjusted for expected redemption. Stamps, vouchers, tiers and games each add a separate promise with its own terms, and each needs its own value and its own expiry logic. That is more for your accountant to model and more for you to keep consistent. The breakage page explains the redemption side with a second example.

How Gimify fits

Gimify is a points-only programme, and points are earned in proportion to the purchase amount. Each member has one points balance across every outlet, so a multi-outlet owner has one set of outstanding points to value rather than one per branch. One outlet is free, and unlimited outlets cost US$99 a month.

Questions owners ask

Do I have to record unredeemed loyalty points on my books?

It depends on the accounting rules you report under. IFRS 15 and ASC 606 require a deferral for points that give customers a material right. Businesses on cash accounting or simpler local rules may not book anything. Ask your accountant which applies to you.

How do I estimate how many points will be redeemed?

Group points by the month they were earned and count how many from each month have been redeemed so far. Where older months have levelled off, that level is a reasonable starting estimate for newer months. Revisit the estimate every reporting period.

Is the liability the face value of all outstanding points?

Not under the standards. The starting figure is the share of each sale allocated to the points, based on their stand-alone value after expected redemption. Face value is still a useful upper bound for cash planning.

What if I cannot estimate how many points will go unused?

PwC's revenue guide says to apply the variable consideration constraint, which can mean recording any minimum breakage you are confident of. Breakage you do not expect is recognised when the chance of redemption becomes remote.

Does a points-only programme make this easier?

Yes. When every point has one dollar value, the liability is a single multiplication. Programmes with vouchers, tiers and several reward types need more than one value to track.