Gift cards are one of the most popular sales and marketing programs within ecommerce. During the holiday season, it’s a great way to continue to drive sales after the shipping cutoff. We’ve also seen companies get creative and offer to refund customers onto a gift card instead of cash, ensuring that the sale isn’t lost.
From a finance perspective, gift cards allow a company to collect money upfront and secure future revenue. While gift cards can help with sales and cash flow, they can be challenging to sort through for accounting teams.
What’s the main challenge in recording and reconciling Gift Cards in ecommerce?
- The sheer number of gift cards can be overwhelming for an accounting team to track and organize.There are a lot of moving parts to a single gift - the original sale, the full or partial redemption of that gift card, and in some cases, a refund back onto the gift card.
- We also see companies creating gift cards for marketing initiatives or giving them to partners or employees. These gift cards can be challenging to track since they were never sold, but still represent a liability to the company.
- There are also third-party applications that help companies manage their returns and exchange programs. The primary way they do this is by creating (and sometimes disabling) gift cards for customers to use in lieu of a cash refund or in advance of receiving the returned product. While great for customers and support teams, this can create a massive challenge for accounting teams.
How should Gift Cards be recorded to be in compliance with GAAP?
- Gift card sales increase the company’s gift card liability (credit) and increase cash (debit) on the balance sheet. The company has already collected the cash for the gift card and will need to provide a good or service in the future.
- When the gift card is redeemed, the sale is captured as an increase to deferred revenue (credit) and the gift card liability is decreased (debit).
How does Blue Onion help to make this process easier?
- Blue Onion creates an audit trail for gift cards from point of sale through partial or full redemption, along with tracking refunds.
- The software also classifies gift cards so it’s easier to identify complimentary gift cards as well as gift cards created through various third-party applications.
Disclaimer: The information provided in this article is intended as general guidance only and is not intended to be nor should it be considered legal or financial advice. You should consult with your CPA to review your business' specific accounting issues and challenges.
