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Accounting for gift card cost

Accounting For Gift Cards

Is anyone aware of an accounting policy statement supporting the treatment of gift card cost,  including the cost of the gift card and the package? Should the cost go above gross margin or below margin? Currently my company treat it as a selling expense(below margin). I need to pull together a policy memorandum supporting that treatment. Any help is greatly appreciated.

Answers

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

I found this:

http://www.linkedin.com/answers/finance-accounting/accounting/FIN_ACC/966412-46420181

I agree with the statement that says " book the printing cost as an inventory item"; because you are "selling" the gift cards (not giving them away in toto) and thus it is an inventory item.

On the other hand if you use gift cards as a promotional item, it would be a marketing expense. So you may have some normal GL transactions moving between inventory and marketing....

Regards

Anonymous
(Analyst) |

Does anyone know the policy statement of classifying expenses as selling expense? I researched and found in GAAP the definition of selling expense is expense related to sell of product. Is there a specific statement that related to this, such as FASB### or something else? Thank you.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

This gives some insight
http://www.nysscpa.org/cpajournal/2007/1107/essentials/p28.htm

And FASB said: http://www.fasb.org/jsp/FASB/FASBContent_C/ActionAlertPage&cid=1176158208936

BTW, these are simple Google searches...

Anonymous
(Analyst) |

Thanks so much Wayne.

Topic Expert
Christie Jahn
Title: CFO
Company: Prime Investments & Development
(CFO, Prime Investments & Development) |

We have Gift Cards and yes they are treated as inventory. The purchase of the card is posted to inventory. When it's sold it would hit Sales Income and the Expense would hit COGS.

Rick Brown
Title: Computer Consultant - Accounting
Company: Databasics
(Computer Consultant - Accounting, Databasics) |

I think this is incorrect. I think that the cost of gift cards is immaterial, 1 or 2 cents per card, and can be directly expensed as overhead like selling expense. Then when a gift card is sold, the proper treatment is to debit the tender, like cash, and credit Gift Card liability, not sales. Then when the gift card is redeemed, debit gift card liability and credit sales. When you sell a gift card, there has not yet been equal consideration until it's redeemed for goods so you still owe the customer up to that point.

Mike Ghibaudi
Title: VP Finance
Company: Black Box Network Services
(VP Finance, Black Box Network Services) |

What if you use the cards as employee appreciation gifts? No cost of acquiring the cards, they are purchased from Amex via earned points…any thoughts?

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

It may be taxable to the employee, you need to really read the IRS and your State laws.

Absent any taxability, I know of no reason why there might be an accounting issue since a) points aren't negotiable, don't have an explicit value.

On the other hand, one could make arguments that they are and do - but the overriding issue in my mind is materiality.

Jack Judd
Title: Retired
Company: Retired
(Retired, Retired) |

For my two cents worth of advice - I have to believe the cost of creating the cards is immaterial.

If you sell the cards for face value, you have a liability for the cash you received and when the card is used you reduce the liability appropriately. If you have a history of a certain percentage of the cards never being redeemed, you can use that in regards to the liability you set up.

If you are giving the cards away, it seems to me you have a current cost - probably selling or marketing, for the cost of the goods provided by the card, not the face value of the card.

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