When we sell someone a gift card from our store – where does that sale amount go? It isn’t reflected as a “Sale” in the accounting and we think it should be.
The sale of a gift certificate/card should be recorded with a debit to the asset account Cash and a credit to the liability account Gift Certificates Outstanding. Revenue is not recorded until merchandise or services are provided to the customer.
When a customer presents the gift certificate for merchandise or for services, the liability account Gift Certificates Outstanding will be reduced with a debit and a revenue account will be credited. If the revenue is a sale of merchandise, the income statement will match the cost of goods sold and other expenses with the revenue.