I have a gift certificate here with a value of $150.00. My company is an Automotive shop and it made this gift certificate as one of the prizes to a raffle draw. The person who won this prize came to the shop and work was done for this value. I am not sure how to account for this. Its a kind of donation but if I am debiting donation expense what am I crediting? Hoping to hear from you guys. Kind Regards. Walter
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- Thread starter Walter
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Not a donation as that term belongs to money sent to a charity. If you do not want to open a new specific expense account try "advertising expense".
When you look at the situation, you did not incur EXTRA expense. It was just that the labor of some folks was incurred and there was no invoice for the revenue. So if you wish to recognize the "gift certificate expense" then DR your new "gift certificate" expense account and CR a new account set up next to salaries expense, called ""Wages offset" to reduce gross wages.
If you do this gift certificate thing rarely I personally would not make this adjustment for practical purposes.
When you look at the situation, you did not incur EXTRA expense. It was just that the labor of some folks was incurred and there was no invoice for the revenue. So if you wish to recognize the "gift certificate expense" then DR your new "gift certificate" expense account and CR a new account set up next to salaries expense, called ""Wages offset" to reduce gross wages.
If you do this gift certificate thing rarely I personally would not make this adjustment for practical purposes.
Thank you very much Kirby. Your explanation is very clear and helpful. Thanks also for the quick response.
That is clearly a promotion expense. When the Gift Certificate were issued the company should have the following info:
1. Quantity issued.
2. Total dollar value and ($2,000)
3. The expiration date of each certificate.
Upon issuance the following entry would be done.
Dr. Promotional Gift Cert $2,000
CR. Deferred Revenue $2,000
Customer redemption: Total cost for work done to MV $650, Gift Cert $150.
Dr. Cash/AR $500
Dr. Deferred Revenue $150
Cr. Revenue MV Repairs $650
Deferred Revenue balance is $1,850. Let's say $750 of the Certs expired, then you are going to charge it back to the expense in the period it expired.
Dr. Deferred Revenue $750
Cr. Promotional Gift Cert $750.
Now your deferred income is balance is $1,100, meaning your Auto Shop still has $1,100 of Gift Cert outstanding that they still have to honor. I hope this helps.