Donating Gift Certificates

Accounting for Gift Certificates Donated

Accounting for Gift Certificates Donated

How do you track the gift certificates you've issued as donations without overstating your expenses, ie reduction in inventory and promos?



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Excellent question!


I would think you would want to track the gift certificate as a sub-account (called "Donated Gift Certificates" or something similar) in your liability account "Gift Certificates Outstanding" ... but the sub-account is not a necessity.

I also think you input the value of the certificate at zero as there is no income, sale or cash received related to this transaction. Your entry would be debit "Cash" (or "Petty Cash" if you don't have a cash account) and Cr "Donated Gift Certificates". What this does is acknowledge that you have a potential liability sometime in the future.

If and/or when the lucky person redeems the gift certificate, you would make a zero value sale debiting "Donated Gift Certificates" and crediting "Sales". This removes the outstanding certificate and acknowledges you no longer have the potential liability.

Assuming you are talking about a product and not a service ... next you would reduce (credit) your inventory at cost for the product donated and debit "Promotional Gifts" (an expense account) not "COGS" as it wasn't a sale.

If the donation was a service, there is no entry to make on the expense side of the transaction as there is no cost associated with services on your books.

I might consider making "Promotional Gifts" a sub-account of my "Advertising and Promotions" expense account to keep my chart of accounts tidy.

CRA has a good page with other references on how to treat gift certicates at Businesses>GST/HST/General> Taxable or exempt> How to treat coupons> Gift certificates. The only difference I can see for treatment is that you will be expensing it to promotional gifts instead of COGS.

I did make the assumption that the gift certificate was not donated to a charity when creating the entries. If it was a charitable donation where you received a tax receipt, I would take a look at CRA's publication Memorandum - Donations of Gift Certificates found under Charities> Policies and Procedures at http://www.cra-arc.gc.ca/chrts-gvng/chrts/plcy/gft_crtfcts-eng.html .

I think that is how I would handle it. Does that make sense to you ... have I missed anything? This felt like an exam question! :0)






P.S. I would like to remind you there is a difference between information and advice. The general information provided in this post or on my site should not be construed as advice. You should not act or rely on this information without engaging professional advice specific to your situation prior to using this site content for any reason whatsoever.

Comments for Donating Gift Certificates

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Oct 16, 2011
Donation of gift certificate
by: Tracy, Ontario

What is the journal entry for a donation of a gift certificate to a charity and what would it be once redeemed?

How is the HST accounted for, if any?

Thanks so much. Love the site!

Oct 16, 2011
Charities and Tax Receipted Donations
by: Lake

Hi Tracy,

I moved your post here as the subject is similar. So read the above post.

As you are dealing with a charitable donation, I would take a look at CRA's publication Memorandum - Donations of Gift Certificates found under Charities> Policies and Procedures at http://www.cra-arc.gc.ca/chrts-gvng/chrts/plcy/gft_crtfcts-eng.html .

Jan 31, 2012
Madoy, Richmond, BC
by: Recording Gift Cards

Can I write off the grand total of a purchase if I use a gift card to pay for part of it?

What I'm wondering is if I can write off the whole total of a business purchase if I use a gift card that someone has given me.

Example :

Purchase sub total: 421.77
HST at 12% 50.61
Gift card total: 189.95
Amount paid: 282.43

How do I enter this? Do I need to acknowledge the gift card?

Thanks in advance! :)



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Madoy, record the gift certificate as an owner's contribution. Your entry will look like this:

DR Expense account 421.77
DR HST Payable: 50.61
CR Owner's Contribution 189.95
CR Cash in Bank 282.43

Jun 02, 2013
Entry in QuickBooks
by: lheiy

What will be the entry in QuickBooks when they redeemed the gift check?



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"If and/or when the lucky person redeems the gift certificate, you would make a zero value sale debiting "Donated Gift Certificates" and crediting "Sales". This removes the outstanding certificate and acknowledges you no longer have the potential liability."

Jun 02, 2013
No money just gift check to surrender
by: Anonymous

Why debit cash since when they redeemed the gift check there is no money really involved there?



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"You input the value of the certificate at zero as there is no income, sale or cash received related to this transaction. Your entry would be debit "Cash" (or "Petty Cash" if you don't have a cash account) and Cr "Donated Gift Certificates". What this does is acknowledge that you have a potential liability sometime in the future."

Sep 17, 2015
Donation of Gift Certificates for Children's Sport Program
by: Gaefin

My client provides children's sport programs and donates gift certificates to charitable events as a means of promotion. They do have costs to provide their services which include space rentals, subcontracted coaches, camp supplies, mileage, sporting goods, etc.

With that in mind, do you still considered that there is no cost or expenses to providing the certificates for these services?

I need to record these certificates that are valued at $180.00 each.

Thank you for your assistance.

Sep 18, 2015
Gaefin
by: Lake

Yes I still stand by what I have said. You are donating the products/services therefore there is no sale. At the time a gift certificate is redeemed, if products in inventory are affected, the value of the product is transferred out of COGS and reclassified as advertising/promotional.

Any other costs/expenses associated with the REDEMPTION (not the giving) of the certificate can be reclassified to advertising/promotional but this should not change your bottom line as it is only a reclassification.

So the initial recording of the certificate is still zero sales/income.

Sep 18, 2015
Donation of Gift Certificates for Children's Sport Program
by: Gaefin

Okay. Is there any HST implications on the redeemed gift certificates. I have read the CRA GST-HST Policy regarding gift certificates and gift cards. I also spoke with a CRA Agent a couple of days ago. It seems (though still not fully clear) that as a HST Registrant, the tax is applicable and it must be added to the value of the gift certificate(s)/card(s) when redeemed.

It seems then that donating creates a loss for the donor...no sale and still pay to the CRA as though there was a sale.

Does this make sense? In this kind of world, I guess so.

Thank you in advance for your feedback.

Sep 19, 2015
Gaefin
by: Laura

Okay, I think what is being said is at the time of the donation all you have is a potential liability for having to provide the services sometime in the future.

When the donated certificate is redeemed at your place of business, CRA is stating it must be treated as a taxable sale. I would understand this if the gift certificate was sold and then redeemed.

For example if you sold (as opposed to donated) a gift certificate:

1. A person comes into your place of business and purchases gift certificate for $180. Let's assume that the certificate buys one specific prepackaged product/service as opposed to say a gift card for a retail store or coffee house where you don't have to spend the amount all at once and can buy anything you want. You would debit cash in bank $180 plus 5% sales tax (insert the tax for your province here but I'll use 5% for this example) = $189 and credit deferred revenue $189.

2. The person who received the gift certificate comes into your place of business and redeems (uses) the gift certificate. You would debit deferred revenue $189 and credit sales $180 and credit sales tax payable $9. You would also remove any associated cost of goods sold by debiting advertising & promotions and crediting COGS (space rentals, subcontracted coaches, camp supplies, mileage, sporting goods, etc.). This assumes you are treating these items as COGS which you should as they are expenses directly related to providing the service.

This is what CRA is referring to when they say it is taxable.

However when you donate a gift certificate, you don't have a sale you have a donation. The value of the sale is $0. $0 x5% sales tax = $0 sales tax.

You record the donation with a zero value. When the card is redeemed, it still has a zero sales value but you now have expenses related to providing the donation which are reclassified to advertising promotions.

That's how I see it. Does that makes sense?

Sep 20, 2015
Donation of Gift Certificates for Children's Sport Program
by: Gaefin

Good day Laura,

Wish you and yours are well.

Yes, it makes sense and much clearer, as my client does not "sell" the gifts certificates to the event or charity the are supporting -- they are donated.

Thank you. :)

Apr 05, 2016
Donating Gift Certificates
by: Ron

For donation of a GC (for personal training services) for fundraising purposes, would it be acceptable to not make an entry when the GC is donated (so as not to overinflate our Promotion Expense), but make 2 corresponding entries when/if it's redeemed?

I'm thinking something like:

Entry 1 - Record Donation:
Debit - Expense - Advertising/Promotions - $200.
Debit - GST Payable - $10
Credit - OC Liability - Gift Certs Donated - $200
Credit - GST Payable - $10

Entry 2 - Record Redeemed:
Debit: OC Liability - Gift Certs Donated - $200
Debit: GST Payable - $10
Credit: Customer/Client - $200
Credit: GST Payable - $10

That way, the value of the service ($200) is recorded as an Advertising/Promotion expense and there is no GST incurred/owing since it wasn't an actual cash sale of services transaction. Or, perhaps, would it be best just to leave out the GST entries?

Apr 11, 2016
Ron
by: Lake

Go back and read the original post. You book a zero value at the time of the donation so there is no overstating expenses just booking a potential liability on your balance sheet sometime in the future.

Think about it. You did not spend $200 to donate your services to the event ... just the possibility of it sometime in the future.

Sep 04, 2016
Customer paying for a sale with cash and gift card
by: John

Hello and thank you for this interesting post.
I have a retail business and we give out gifts cards as rewards/promotions to our customers. i.e. spend $100 and get a $20 gift card. If a customer comes back and buys something that has more value than the gift card and pays for the remaining balance with their cash, how would I account for that?

Example:
Item A is priced at $100
customer pays with $20 rewarded gift card & $80 cash
COGS for Item A is $30

Thank you in advance

Sep 09, 2016
John
by: Lake

Your till should be able to ring up the sale as normal and then accept the payment from two sources - one the redeemed gift card and second the remainder of the payment by cash (or debit or credit card is fine too).

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