Thread: Thank you TGO for my first limo ride. [Story]

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Originally Posted by DaiTengu

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This poster thinks if you buy a pre-paid block of sessions that it should be unacceptable for them to ever expire - http://www.yogaforums.com/forums/f16...ice-10958.html

So let's say I run a yoga studio, and my normal rates are $50 a session if buying just the one session. I will sell a block of 10 sessions for $300 but they must be used within, say, 2 years. The reason for this is I put that $300 into an sort of holding account called Prepaid Yoga Sessions and every time you use one up, I recognize $30 of yoga income. The is the basic accounting principle of revenue recognition - I cannot recognize it as income until the contracted service is rendered. The rest of that initial purchase is unearned income, and I can't recognize it on my income statement until I actually perform the service that was prepaid. If those sessions never expire, I am carrying that on my books forever and that is bad for several reasons. One, it is a pain to deal with because as my rates change I will always have a separate line for your deal at that $30/session price. Secondly, as my rates change, if enough people banked old sessions it would screw up my income (both actual, and estimates used for gauging growth) because if down the line my studio grew and with inflation my sessions cost $175 a piece, when you use yours I only recognize $30. Lastly there are state laws that state how long I can hold prepaid income for before it, by statue, becomes abandoned property and must be remitted to the state. So for simplicty, I say "hey fatso, you have 2 years to use these", you agree to it, and after 2 years I recognize the balance on my income statement as expired prepaid sessions. You agreed to that up front so don't go on the internet to whine about it because we don't do it to be dicks, we do it because that is just how a business is run, you god damn fat yoga head.

Originally Posted by coqauvin

Isn't that the same kind of concept as devaluing purchased equipment over time when accounting for a business' assets?

Depreciation has an expiration date too, you can't just write off 2% a month or whatever forever, eventually you hit salvage value and full depreciation on the books. Also depreciation is completely different but I just wanted to make that point. You get the business side of it I think, and as mutton said as long as you are clear up front about the terms and it isn't some kind of "fine print" thing, then the contract is voluntarily entered into by both parties that agreed to those terms. The ability to contract like that is pretty much cornerstone to everything in modern business.

Originally Posted by coqauvin

This brings up the question of what happens if the certificate is never used, to which I don't really have an answer.

You answered your own question as to why there are expiration dates