The decision to recognize and record a liability is sometimes a matter of judgment. People who use General Motors credit cards earn rebates toward the purchase or lease of GM vehicles in relation to the amount of purchases they make with their cards. General Motors chooses to treat these outstanding rebates as a commitment in the notes to its financial statements:

GM sponsors a credit card program . . . which offers rebates that can be applied primarily against the purchase or lease of GM vehicles. The amount of rebates available to qualified cardholders (net of deferred program income) was $4.5 billion, $4.1 billion, and $4.0 billion at December 31, 2004, 2003, and 2002, respectively.17 Using the two criteria established by the FASB for recording a contingency, explain GM’s reasoning in treating this liability as a commitment in the notes, where it will likely receive less attention by analysts, rather than including it on the income statement as an expense and on the balance sheet as an estimated liability. Do you agree with this position? (Hint: Apply the matching rule.)

Decision Analysis Using Excel Baseball Contract