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 Sold at Discount
Answers
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.
1
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)?
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
Thanks :)
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.
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
Filed Under:
Accounting