Discussion:Accounting for Discounted Gift Certificates

From TaxAlmanac, A Free Online Resource for Tax Professionals
Note: You are using this website at your own risk, subject to our Disclaimer and Website Use and Contribution Terms.

From TaxAlmanac

Jump to: navigation, search

Discussion Forum Index --> Accounting Questions --> Accounting for Discounted Gift Certificates

Confuzzled (talk|edits) said:

10 December 2012
Hi everyone,

I'm new to this forum, and have been trying to search for answers re: Gift Certificates. Hopefully another professional can help me out here.

Basically i'm taking over the accounting duties for a company who has recently restructured. I'm a bit confused as to the current treatment of their gift certificates, of which they sell for a lower price than what can be redeemed.

So for e.g. the voucher is sold on a group buying site for $40, which can be redeemed for $100 of value on their website.

So there's 2 levels of transactions to be had here: 1 with the group buy site who is selling the vouchers on behalf of the company, and the 2nd being the individual transactions with the customers. Once the campaign has ended on the group buy site, they pay us cash, and then the customers can redeem their vouchers on our website to the value of $100.

Let's say 100 vouchers were sold, 10% commission payable...can someone shed some light for me on what the journal entries should be? I'm at a bit of a loss as to how to treat the difference in cash received from the group buy site and the value redeemed from the gift certs. At the end of the day, is the full value of the gift certs redeemed (ignoring breakage) going to be recognised ($100)? Or is it supposed to be the net value ($60?)

Thanks very much in advance. Much appreciated.

Captcook (talk|edits) said:

10 December 2012
Here in WA state where we have a gross receipts tax, I think you would find it necessary to record $100 of revenue in this transaction. The difficulty is accounting for the timing between the sale of the GC and the redemption. Upon sale by the partner, I would credit $100 to "GC purchased"; debit $40 to "cash"; and debit $60 to "GC purchased discount" (a contra liability account). This is the simple part. The complex part is relieving the liability and contra-liability accounts, if not all GCs are sold in this manner.

If you could fill out your profile, I'd be happy to continue my response.

spam removed

Pakman (talk|edits) said:

5 May 2013
I believe for gift cards you have to book them as a deferred revenue liability and then recognize the revenue when they are redeemed.

Found a few items that will help: Look at the paragraph headed "DELAY IN RECOGNITION OF SALE" in http://www.journalofaccountancy.com/issues/2007/nov/accountingforgiftcards.htm

[copyrighted information removed for compliance with TaxAlmanac's copyright policies; the link had already been provided.

Heres something else that caught my eye as well, short read and highlights some points: http://www.accountingtools.com/gift-card-accounting

MJG2112 (talk|edits) said:

9 May 2013
I have a client with the same scenario. We have advised the following:

Gift Certificate Sale:

Cash(db) 40.00

     A/P gift certifications(cr)             40.00

To record the sale of $40.00 in gift certificates with a $100.00 redemption value.

Gift Certificate Redemption:

A/P gift certificates(db) 40.00

Discounts & promotions(db) 60.00

Cash(db) 25.00

     Sales(cr)                              125.00

To record sales of $125.00 & gift certificate redemption at full redemption value.

To join in on this discussion, you must first log in.
Personal tools