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Comment by peterb | Hacker News Reader

Two reasons are float (they get your money before you use the coins) and breakage (they keep lost and/or forgotten coins).

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This is good for cashflow, but depending on the accounting interpretation, it's neutral for the balance sheet.

Subscription schemes and prepayments create offsetting liabilities.

That is:

I give Example Co. $100 now.

They book an increase of $100 in their cash at bank, but they also book an offsetting liability -- services owed -- of $100.

However, from a cashflow perspective, $1 now is always better than $1 later.

I am not an accountant, this is not accounting advice.

I don't think breakage applies, because I doubt they can keep the the lost/forgotten coins, just like unspent gift card money is not kept by the issuer.

But it does sit in their bank account generating interest until used.

It's more analogous to an indefinite, interest-free loan to Amazon.

Interesting. Per [1] they can't be cashed out or exchanged. So you buy coins, that's the transaction. Amazon is probably then free to do whatever they want with the money. Their only obligation is to later pay out to developers who receive coins as payment. So they're frontloading their earnings. And devs only receive 70% as usual so Amazon gets 30% totally in the clear (no potential future obligations).

[1] http://www.digitaltrends.com/mobile/heads-or-tails-amazon-co...

Is this any different from how Facebook Credits work(ed)?

Someone else will have to answer that, I'm not familiar with them.

Do those rules apply if the balance is not denominated in dollars?

Riot keep the balance of you RP that you paid money for if you don't spend it in League of Legends, would it be different if it were called Riot Coins?

Riot doesn't pay out the coins you spend to other people though. If you buy $1 of an app with these amazon coins, they have to pay the developer their $0.70 (or whatever their cut is). Because of this, the whole income can be realized when the RP is purchased.

Where does the unspent money go, then? Apparently, in some cases in the US, it goes to the state, but not in all cases. See http://blogs.wsj.com/economics/2011/12/24/number-of-the-week...

Best Buy, for example, sets that level at about two years. In fiscal 2011, the electronics company recorded $53 million in income from gift-card “breakage,” or cards that are unlikely ever to be redeemed, up from $43 million a year earlier.

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