Accounting for Gift Card Sales
Gift Card Sales are the business transactions that the company exchanges the gift card for cash. Gift cards or gift vouchers are prepaid cards that consist of specific amount of cash that can be used to purchase in a specific store.
Gift cards can be physical cards or electronic which consist of serial numbers that can be redeemed for the amount of cash and used to purchase in a specific store.
The gift card allows the customer to transfer the card as a gift from one person to another. It allows the receiver to use and purchase whatever they want in the store. For example, customers can use apple gift cards to purchase any product or service sold by Apple.
When the company sells gift cards, it will receive cash from customers. But they cannot record the revenue immediately. They need to record liabilty which is the obligation to fulfill the customer’s reuirement when they redeem the gift cards.
The company can record revenue when the customer brings back the card and use them to purchase the goods or service. The company has provided the goods or service to the customers, so it is time to record revenue. The obligation is also settled, so it should reverse the gift card liability.
Journal Entry for Gift Card Sales
When the company sale gift cards to customers, they will receive cash payments. However, they do not yet record the sale revenue. They have the obligation to settle the gift card amount with the service or goods.
The journla entry is debiting cash and credit gift card liability.
| Account | Debit | Credit |
|---|---|---|
| Cash | 000 | |
| Gift Card Liability | 000 |
The entry will inrease cash receive from the customer. It also increases the liability on balance hseet which is the company’s obligation to fulfill for customers.
When the customer use the gift card to purchase the product or service, the company will reverse the gift card liability and record revenue.
The journal entry is debiting gift card liability and credit sale revenue.
| Account | Debit | Credit |
|---|---|---|
| Gift Card Liability | 000 | |
| Sales Revenue | 000 |
Example
Company ABC is the retail store. During the holiday, company sold the gift cards for $ 200,000 to various customers. In the same month, the customer has redeemed the gift card $ 10,000 to purchase the products. Please prepare accounting record for gift cards transactions.
The company has sold gift cards for $ 200,000. It is not yet the revenue, the company record cash receives and liability.
The journal entry is debiting cash of $ 200,000 and credit gift card liability $ 200,000.
| Account | Debit | Credit |
|---|---|---|
| Cash | 200,000 | |
| Gift Card Liability | 200,000 |
During the month, some customers have used a gift card to purchase goods and service. The company has to reverse the gift card liability and sale revenue.
The journal entry is debiting gift card liability $ 10,000 and credit sales revenue $ 10,000.
| Account | Debit | Credit |
|---|---|---|
| Gift Card Liability | 10,000 | |
| Sales Revenue | 10,000 |
