How to Deal With Gift Cards in your Books

By Mary Hunt

Gift Cards.  Who doesn’t love them?  As a bookkeeper, I often see retail establishments struggle with how to properly treat them on their books and in general.  I confess when I ran my own restaurants, I am sure I didn’t handle them properly. Once upon a time, gift cards expired. This, of course, was in the “old days” before technology allowed us to track things on-line.  In October 2009, the Ontario Consumer Protection Act passed a rule that stated retailers could no longer have their gift cards they sold ever expire. There are still some exceptions to that rule such as specific services or promotional items but generally if you buy a gift card for cash at any retailer, you can use it whenever you want in the future.  So how should business handle them on their books? It is hard not to perceive money coming in as anything but revenue but if no product or service has been sold then it has to be treated like a liability or a pre-paid item to the business and therefore it would appear on the balance sheet.

 

Blog Post - Clay Banks

Image courtesy of Clay Banks

 

At some point in the future, someone is going to come in and purchase a product or service and not actually give you money for it but instead use their gift card for some or all of the value.  So instead think of that liability as your holding account so when that transaction takes place you then move that money from your balance sheet item and only then does the revenue get recognized on your profit and loss statement. That is the accounting behind it, but what about the tracking? Whether you are a big or small business, I strongly recommend you create a system of tracking what gift cards are out there. Even creating a simple excel spreadsheet with the date a card was purchased, the tracking number for the card and the value.  Then when that card is redeemed, you add the date and the value that was redeemed. This way you will always have a running total of what is out there and what your true liability is should (heaven forbid) everyone come in on the same day and redeem them. That amount should always match what is on your balance sheet and therefore easy to track at year end. Disciplining yourself to add this as part of your daily routine when cashing out at the end of your day will save you a lot of time and headaches in the future.