USPS Revenue Recognition - Are Collectors A Drain On The USPS?

About a week ago, a thought came to my mind (please bear with me)...

In accounting, there's a general rule that you can only recognize revenue as it's earned (i.e., as the related services are performed). Until those services are performed, the USPS is required to establish a liability on the balance sheet (here called "Deferred revenue-prepaid postage") and can't recognize revenue when stamps are sold.

As many new stamps purchased by collectors from the USPS will never be used, I wondered if the related revenue was "lost" to the USPS forever. Are collectors an overall drain to the USPS's financials? Are there obligations on the USPS's books from 50, 60, or 70 years ago preventing them from recognizing revenue?

While I know the USPS has much larger problems than the potential drain from collectors, the following excerpt from the USPS's financials might be interesting to accounting-minded people out there:

"Deferred revenue for postage sales is developed and validated through complex mathematical and statistical sampling methods for estimating postage stamp usage. The estimated postage stamp usage is deducted from
stamp sales with the difference representing the Postal Service's obligation to perform future services. That obligation is reduced by recognizing a provision for postage sold that may never be used, either through loss, damage, or stamp-collecting activity. The Postal Service recognizes revenue over time from "breakage" (representing stamps that will never be used for mailing due to loss, damage or stamp collection) at a rate equivalent to the estimated postage stamp usage."

So there it is - the USPS eventually recognizes revenue from sales to collectors (although not as quickly as it might like...).

It is interesting. I think about the accounting in a tangential fashion when I use a bunch of 3 cent stamps from the Fifties that I acquired as collateral material (really at no cost) and the USPS has to move that mail across the Country for me. I believe that the topic of disallowing the use of that type of postage has reared its head before but so far the USPS still acknowledges it as valid.

That obligation is also reduced as rates go up.

Rogdcam - It would be better if the USPS could invest the deferred revenue until the services are performed, but I don't think the accounting rules allow that. Based on their track record, it might be for the best anyway...

I'm not certain what accounting rules the USPS has to play by, but I highly doubt that postage is treated the same as, say, a gift card to a restaurant or a store. Those entities can't count the revenue until the cards are spent, but I'd be surprised if postage stamps are treated in the same fashion.

Just as for profit and not for profit businesses and organizations can write off bad-debt, which is a revenue they will never collect, one would think the USPS could write off an obligation that it is reasonably certain, based on past statistical tendencies, it would never have to fulfill, and book the revenue. As the song says, "Go on, take the money and run."
Coverage in Linns (may 2017) seems to suggest that there has been for decades some sort of routine calculation that there was a certain amount of "breakage," as the postal service called the phenomenon of sold stamps never being used. And that this "breakage" rate allowed them to book the revenue on the "breakage"after a couple years. Issue of forever stamps threatened to change the percentage, but it seems to have stabilized . 6% is the magic number. Given USPS volume, that adds up to real money, so getting the figure right is a detail they sweat.

https://www.linns.com/news/us-stamp...tments.html.

Here's to "breakage". May all of us contribute to its growth.

- Jonathan

I certainly hope that your postal service isnt headed where ours has. And it seems like this is the introduction of this.
In my time I have seen the introduction of 'fast post,i.e. guaranteed overnight delivery, come and go.

This has left us with another 'buyer beware', non accountable service of up to 10 days for around $1.30 on the most plain and uninspiring 'kiwi stamps'.

The only alternate now for sending letters quickly and reliably is by privatised courier outfits with tracking. Guaranteed revenue with out the govt guarantee.

Post offices and ' the services' needed to maintain are just not feasible income staples for the state. So keep on trucking stampers. next to a few broken and maimed stamps which would be standard writeoffs in any accounting system its us thatl keep it alive!

But not enough to pay for postal workers who may or may not save a life in performing their duties.


But really good grief what a complicated situation? Cant recognise revenue for selling a stamp?

Economics makes for such a twisted business. A rather tangled web.

Sounds to me like its winding down, by a rather "complex mathematical and statistical sampling method".

The only bit that was interesting was the stamp collectors in the same sentence as maimed and broken stamps. Nrrr excuse me thats possible errors freaks and oddities...

Cash in the bank is, well, cash in the bank. Show me a business that turns down cash. Stamp collectors buying stamps and preserving them mint can only benefit the USPS. Treat them like a gift card sold but never redeemed and all the wat to the bank.