Financial Accounting, 9th Edition

3 Adjusting the Accounts

Feature Story Keeping Track of Groupons

Who doesn't like buying things at a discount? That's why it's not surprising that three years after it started as a company, Groupon was estimated to be worth $16 billion. This translates into an average increase in value of almost $15 million per day.

Now consider that Groupon had previously been estimated to be worth even more than that. What happened? Well, accounting regulators and investors began to question the way that Groupon had accounted for some of its transactions. But if Groupon sells only coupons (“groupons”), you're probably wondering how hard can it be to accurately account for that? It turns out that accounting for coupons is not as easy as you might think.

First, consider what happens when Groupon makes a sale. Suppose it sells a groupon for $30 for Highrise Hamburgers. When it receives the $30 from the customer, it must turn over half of that amount ($15) to Highrise Hamburgers. So should Groupon record revenue for the full $30 or just $15? Until recently, Groupon recorded the full $30. But, in response to an SEC ruling on the issue, Groupon now records revenue of $15 instead.

A second issue is a matter of timing. When should Groupon record this $15 revenue? Should it record the revenue when it sells ...