Green Dot 2010 Annual Report Download - page 50

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Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in accordance with GAAP. The preparation of our
consolidated financial statements requires our management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures.
We base our estimates on historical experience, current circumstances and various other assumptions
that our management believes to be reasonable under the circumstances. In many instances, we could
reasonably use different accounting estimates, and in some instances changes in the accounting esti-
mates are reasonably likely to occur from period to period. Accordingly, actual results could differ
significantly from the estimates made by our management. To the extent that there are differences
between our estimates and actual results, our future financial statement presentation, financial condition,
results of operations and cash flows will be affected. We believe that the accounting policies discussed
below are critical to understanding our historical and future performance, as these policies relate to the
more significant areas involving management’s judgments and estimates.
Revenue Recognition
We recognize revenue when the price is fixed or determinable, persuasive evidence of an arrange-
ment exists, the product is sold or the service is performed, and collectibility of the resulting receivable is
reasonably assured.
We defer and recognize new card fee revenues on a straight-line basis over the period commensurate with
our service obligation to our customers. We consider the service obligation period to be the average card lifetime.
We determine the average card lifetime for each pool of homogeneous products (e.g., products that exhibit the
same characteristics such as nature of service and terms and conditions) based on company-specific historical
data. Currently, we determine the average card lifetime separately for our GPR cards and gift cards. For our GPR
cards, we measure the card lifetime as the period of time, inclusive of reload activity, between sale (or activation)
of a card and the date of the last positive balance on that card. We analyze GPR cards activated between six and
forty-two months prior to each balance sheet date. We use this historical look-back period as a basis for
determining our average card lifetime because it provides sufficient time for meaningful behavioral trends to
develop. Currently, our GPR cards have an average card lifetime of nine months. The usage of gift cards is limited
to the initial funds loaded to the card. Therefore, we measure these gift cards’ lifetime as the redemption period
over which cardholders perform the substantial majority of their transactions. Currently, gift cards have an
average lifetime of six months. We reassess average card lifetime quarterly. Average card lifetimes may vary in
the future as cardholder behavior changes relative to historical experience because customers are influenced by
changes in the pricing of our services, the availability of substitute products, and other factors.
We also defer and expense commissions paid to retail distributors related to new card sales ratably over
the average card lifetime, which is currently nine months for our GPR cards and six months for gift cards.
We report our different types of revenues on a gross or net basis based on our assessment of whether
we act as a principal or an agent in the transaction. To the extent we act as a principal in the transaction, we
report revenues on a gross basis. In concluding whether or not we act as a principal or an agent, we
evaluate whether we have the substantial risks and rewards under the terms of the revenue-generating
arrangements, whether we are the party responsible for fulfillment of the services purchased by the
cardholders, and other factors. For all of our significant revenue-generating arrangements, including GPR
and gift cards, we recognize revenues on a gross basis.
Generally, customers have limited rights to a refund of the new card fee or a cash transfer fee. We have
elected to recognize revenues prior to the expiration of the refund period, but reduce revenues by the
amount of expected refunds, which we estimate based on actual historical refunds.
On occasion, we enter into incentive agreements with our retail distributors and offer incentives to
customers designed to increase product acceptance and sales volume. We record these incentives,
including the issuance of equity instruments, as a reduction of revenues and recognize them over the
period the related revenues are recognized or as services are rendered, as applicable.
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