SkypedOut - Revisited

I contacted a SkypeOut staffer via their message board system about the credit expiration issue, here is their response:

Thank you for your input. We are aware that this might upset some users and are reviewing the policy. The reason policies like this exist is not to grab money but if we do not expire ununsed credit at some point we will have an ever increasing amount of liability on our balance sheets. It's a serious accounting issue to have constantly increasing ununsed credits like this.
 
But like I said, we are reviewing the policy.

Comments

[Aswath]

I am no accountant by any streatch of imagination. But if this is the true reason, then wouldn't recognizing only the minutes consumed as revenue and the rest to be "held in escrow" do the trick? Alternatively, why not plow the money back into the social pool and give it back.

[Jake]

This is a real problem.

You do recognize the revenue as the minutes are delivered. That's not the problem here.

The problem is the increasing account balance pool represents a future liability to deliver service. This becomes a deferred revenue liability. Unless you have a means, like a balance expiration, to convert this to revenue and relieve the liability you show a large current liability offsetting your assets.

This behavior is certainly not unique to Skype.

As for plowing the money into the social pool, which social pool is that? Once Skype expires the account and recognizes these funds as revenue, they flow to the bottom line. Skype can reinvest (plow) that money into their business or return that money as a dividend to their shareholders.

[Aswath]

Like I said I don't understand accounting priciples and I also know that this occurs in many places like gift cards. But I also know that it doesn't happen in many places like Traveller's checks. Since the liability is offset by the asset given by the users and not the company's anyway I really miss what the problem. I am sure it is a basic accounting principle that I am being too dense to follow.

As far the social pool, let us say that at the end of April you want to clear 310 minutes; then everyday in the month of May, you do not charge the first 10 mins. The lucky ones are the recipiant of the booty. This specific example is not important, but the idea is like a coop the user pool benefits, even if it is not equitable.