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Accounting for Gift Cards Sold at Discount

I am working with a client who is considering selling gift cards at a discount (e.g., pay $90 for a $100 gift card). I know that when ordinarily accounting for gift cards, you debt cash and credit a gift card liability when the gift card is sold, and then debit gift card liability and credit revenue once the goods are delivered or service has been rendered. My question is, if selling the gift cards at a discount, do you recognize the discount when the gift card is SOLD or when the goods are DELIVERED? What do the journal entries look like under the proper method? Thank you for your advice!

Answers

Greg Anderson
Title: CFO
Company: iGPS
LinkedIn Profile
(CFO, iGPS) |

Gift card sale
DR cash $90
CR Gift Card $90

redemption
DR gift card 90
CR Sales 90

The discount is nothing more than a type of coupon and recognized on sale - ie your sale price is lower. You don't have to book an entry every time you do a promo or lower price. The only exception is if you are giving the farm away, then you may need to write down inventory values.

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

Gregory,

I think you missed something here.

The Sale accounting I agree with.

Redemption is where I don't. The total discount from the sales price would be $100. Most consumers would want to see Item $300, Gift Card $100, Due $200.

So on the accounting backend, where would the extra $10 be booked (maybe internally a stand-off account to Gift Cards to show discount applied)?

Anonymous
(unemployed) |

What if a school makes available to its families for sale, Lands End Gift Cards to help them purchase school uniforms. We purchase the gift cards at a discounted rate ($42.50) and sell them at the same discounted rate, although the value of the card is full value ($50).

Families pay in one of two ways....right at the time of transition (by check or cash) or ask to be billed on their account (to pay at a later time). In the past we worked on cash basis so the entries were as follows:

Paid LE bill
Debit LE Gift Cards
Credit Cash

When payment was deposited to bank
Credit LE Gift Cards
Debit Cash

We are moving to an accrual basis, so is this how we would change this process?
When we purchase:
Debit LE Gift Cards (which are currently set up as an asset account)
Credit ??

When we pay for purchase:
Debit ??
Credit Cash

When family purchases (whether on account or not)
Credit LE Gift Cards
Debit ??

When payment deposited
Debit Cash
Credit ??

We will also be moving to Quickbooks Accountant 2014 (working on setting up the conversion now....don't ask...wasn't my choice). I'd like to track the "inventory of these gift cards as well as gift cards we purchase and have donated to us to use for benevolence on our church side. What would your recommendations be for this type of scenario?

Thanks :)

Damon Butler
Title: CFO
Company: The Protective Group, Inc.
(CFO, The Protective Group, Inc.) |

I think the ten is shown as a gross to net sales reduction so you show gross sales of 100 and net sales of 90.

Anonymous
(Consultant) |

You'll probably recognize the discount when the card is sold, since you have to account for the discrepancy between the value of the card and the cash received, so:
DR Cash $90
DR Discounts $10
CR Gift Cards $100

Also do some research on gift card breakage, since many cards aren't redeemed.

Re: the Lands End cards, on purchase:
DR cards
CR payables

When paying for cards:
DR payables
CR cash

On sale of cards (if on account):
DR receivables
CR cards

On cash deposit:
DR cash
CR receivables

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