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Accounting for gift cards | Gift certificates Search

May 23, 2018

Value Packs
The essential accounting for gift cards is for the issuer to initially record them as a liability, and then as sales after the Controller Library Value Pack
card holders use the related funds. There are varying treatments for the residual balances in these cards, as noted CFO Library Value Pack
below. Bookkeeper Library Value Pack
Financial Analysis Value Pack

Background of Gift Cards

Accounting Bestsellers
Accountants' Guidebook
Gift cards are a concept that has been in use for many years, first appearing as employer-provided scrip that Accounting Controls Guidebook
Accounting for Casinos & Gaming
employees could use to acquire goods in the company store. The current interpretation of the gift card has since been
Accounting for Inventory
expanded to include all consumers, not just employees. Gift cards are a boon to the companies selling the cards, for Accounting for Managers
the following reasons: Accounting Information Systems
Accounting Procedures Guidebook
Agricultural Accounting
Source of cash. The recipients of gift cards do not necessarily use them. Depending on the study, it appears Bookkeeping Guidebook
that between 10% and 20% of all gift cards are not used. Budgeting
Upspending. Many card recipients spend not only the amount on the card, but a great deal more, which is CFO Guidebook
known as upspending. Closing the Books
Construction Accounting
Returned goods. The amount of goods returned to the company decline from what would be experienced
Cost Accounting Fundamentals
with a gift purchase, since the card recipient knows exactly what he or she wants to buy.
Cost Accounting Textbook
Credit & Collections
Fixed Asset Accounting
Accounting for Gift Cards and Gift Certificates
Fraud Examination
GAAP Guidebook
Governmental Accounting
There are a number of accounting issues related to gift cards, which are:
Health Care Accounting
Hospitality Accounting
IFRS Guidebook
Liability recognition. The initial sale of a gift card triggers the recordation of a liability, not a sale. This is a
Lean Accounting Guidebook
debit to cash and a credit to the gift cards outstanding account. New Controller Guidebook
Sale recognition. When a gift card is used, the initial liability is shifted into a sale transaction. Nonprofit Accounting
Breakage. If there is a reasonable expectation that a certain proportion of gift cards will not be used, this Oil & Gas Accounting
amount can be recognized as revenue. Payables Management
Escheatment. When a gift card is not used, the funds must be remitted to the applicable state government; the Payroll Management
Public Company Accounting
company cannot retain the cash. This requirement is stated under local escheatment laws that cover
Real Estate Accounting
unclaimed property. Consequently, there must be a system for tracking unused gift cards, which trigger a
remittance once the statutory dormancy period has been exceeded.
Fraud reimbursement. A thief could obtain access to the identification codes for individual gift cards that are Finance Bestsellers

on display in retail stores, wait for someone to buy the cards, and then use the codes to buy goods. When this Business Ratios Guidebook
Corporate Cash Management
happens, the issuing entity should reimburse the defrauded customers, which should be tracked by the
Corporate Finance
accounting staff.
Cost Management
Enterprise Risk Management
Financial Analysis
Though it is not an accounting transaction, you should also be aware of the delay in recognizing sales caused by gift
Interpretation of Financials
cards. Card recipients may not use them for months, so the initial "sale" of the card only results in the recordation of a Investor Relations Guidebook
liability, which is eventually transformed into a sale when the card is used by the recipient. MBA Guidebook
Mergers & Acquisitions
Treasurer's Guidebook
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