How to Recognize Loyalty Points Breakage Income from Expired or Unredeemed Points
Releasing the loyalty points liability to Other Income when points expire without being redeemed.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Loyalty Points Liability | Liability (-) | 2,500.00 | - |
| Other Income (Points Breakage) | Revenue (+) | - | 2,500.00 |
💡 Accountant's Note
Points that pass their expiry date without redemption are an obligation that no longer exists. The liability is released to Other Income based on historical expiry rate assumptions.
Practitioner & Systems Framework
💻 ERP Architecture
Apply the IFRS 15 proportional breakage method — recognize breakage income in proportion to the pattern of points redemptions using the estimated non-redemption rate. This avoids a one-time large income hit at expiry and instead spreads the recognition proportionally. Run the breakage calculation monthly or quarterly based on the cohort issuance data.
⚠️ Audit Flags
See gift-card-breakage-revenue for core breakage audit notes. For loyalty points, the additional consideration is whether the points expiry policy is consistently enforced — if the store routinely extends points expiry for customer retention, the breakage rate assumption is overstated. Auditors will check actual extension patterns against the breakage model.
📄 Required Documentation
Historical points redemption data by cohort, non-redemption rate calculation, IFRS 15 proportional breakage methodology memo, Loyalty Points Liability roll-forward, breakage income schedule, and extension policy document.
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Expert Analysis by Qusai Ahmad
General Accountant Supervisor & IFRS Specialist
Specialized in SAP GUI automation and Middle Eastern tax compliance. Building digital tools for the next generation of finance leaders.