You are currently viewing a sample of the Cram Kit. Click here to unlock everything.
Collection of cash
Gift cards serve as deferred revenue that will be "cashed-in" on at upon redemption.
They don't truly count as revenue until they're "cashed-in"!
Scenario: In March, your lemonade stand sells a total of $100 in gift cards.
Debit to Cash because upon selling the $100 in gift cards, we're collecting cash, and assets (Cash) have a normal debit balance.
Credit to Deferred Revenue because we now owe our customers $100 in future sales, and liabilities (Deferred Revenue) have a normal credit balance.
Redemption of gift cards
Scenario: In April, your customers redeem $75 worth of the gift cards sold in March.
Debit to Deferred Revenue because no longer owe our customers $75 worth of the $100 of future sales from gift cards, and liabilities (Deferred Revenue) have a normal credit balance.
Credit to Sales Revenue because now that $75 in gift cards have been redeemed, they count as revenue, and revenue accounts (Sales Revenue) have a normal credit balance.
