I received a question about the recording of gift cards and gift certificates in QuickBooks Online.
This is an excellent question, as the funds received from the sale cannot be recorded as income until after the card or certificate has been redeemed.
In this week’s video I walk through the steps to create an item to sell, and an account to post the funds to, and then show you how to record the sale and subsequent redemption:
If you followed this all the way through you will now understand how this is reflected in your reports and what to watch out for to be sure that everything is recorded accurately.
As always, if you have any questions, don’t hesitate to reach out.
Hi, Kerry here, from MyQuickBookKeeping.
I have a great question from Tineke, she wants to know how to record the sale of gift cards and then what do you do when people come in and use them to pay for the goods or services that you offer in your business?
It would require you to set up a new account in your chart of accounts, because any funds you received in the sale of gift card cannot be included in your income until after you actually deliver the products or services to the person who pays with the gift card. Be sure to watch right to the end, because I’ll follow all the transactions through to your balance sheet and you’ll be able to see the result of all your handiwork.
Now, let’s use the sample company to get this set up. I’m in the US Sample Company today, and the first thing we’ll do is set up an account for the gift card sale and redemption. From accounting on the left-hand tab, we can access our chart of accounts, select new. The category type is going to be an “other current liability”; this is something that we owe, we haven’t yet delivered the goods or services, but we have the funds. Our detail type “other current liabilities”, let’s name this account gift cards.
In the description, I’m going to type, ‘gift cards not redeemed’ because these are the cards that we have sold to people that we haven’t yet redeemed or provided the services. Save and close. I’m going to set up a product to sell, so from the accounts, we’ll go to products and services, we create a new product.
Now, I’m not going to be tracking an inventory of gift cards, so I’m just going to call this a service, gift card. If you want, you can create different cards for different values. I’m just going to set it up with a default rate of $100. It’s definitely not taxable. When you provide selling the gift card, you’re not charging tax, you charge the tax when you subsequently provide the goods for services. Now, here we have a field that says, income account, we’re not going to post this to an income account, we going to post it to the gift cards account that we just set up. That will appear in our balance sheet. So, here it is, we can save and close.
Now, let’s sell two gift cards. So, somebody’s going to come in we’ll use a sales receipt, we don’t know who’s going to use this gift card, so I’ve set up the customer as “gift card customer”. Wed don’t need to track who’s going to buy a gift card for somebody else. So, pop down here, we’ve set up our product and service, so it’s a gift card— two $100 gift cards. We should see—it’s come to $200. I’m popping it in undeposited funds for now, I’ll say they paid me cash and I’m just going to pop it in the till and go to the bank later. So, let’s save this. Let’s have a look at our balance sheet. So, here we are at the balance sheet and we have $200 sitting in undeposited funds. We scroll down to the liabilities, we have $200 sitting in gift cards.
So, now let’s redeem a gift card. So, a customer is going to come in and they’ll receive one of these gift cards. Look use a sales receipt, let’s see, we’ll say it’s Diego, and Diego is going to buy—let’s see what he going to buy—he’s going to buy a pump. And we’ll say that this pump is worth $250 with tax on it, he’s going to use his gift card to pay for part of it, use his gift card. We need to deduct his gift card, because he’s redeeming it, so the $100 will come off. We can see here that the taxable amount—tax for subtotal is $250, and if he lives in California, he would be charging at 8 percent and then the gift card comes off, that’s just a flat $100, because we didn’t collect any tax on it, so that makes sense. If you’ve got questions about any of that, you can always check with your accountant about the sales taxes in your particular jurisdiction.
So, now I’m going to save this sales receipt. Let’s pop back and see what a balance sheet looks like now. Scroll down here, we can see our gift card balance has dropped down to $100. There are some rules about what accountants called “breakage”, and this is where you’re allowed to include a percentage of your sales of gift cards in your income to take into account the fact that not everybody is going to redeem their gift cards. I’ve included a link to a video below just in case you want to know more detail about this, I’m not going to go into it here. Let me know if you have any questions.
If this video was useful, please click like below, subscribe to my channel. I’ve created a small business month end checklist, that helps you to make sure your books are fully in order at the end of every month. You’ll be looking at gift card balances too possibly, click the link below, you can download it and be subscribed to my newsletter.
Tineke, thank you so much for your question. And if there’s anything else anyone else would like to know about, please do write or make a comment below, my next video could be for you.