I have several restaurant clients who regularly donate Gift Certificates as promotional GC or as donations for fund raisers/community help, etc. The GC is recorded in a Liability account until it is redeemed and expensed as a Promo GC. It's the same GC Liability Account as GC that are "sold" to customers. When the GC is redeemed, the food and beverage is recorded as sales income which cancels out the Promo GC expense - we are now at Net "0". How can I enter this differently so I can actually take a deduction/expense for the Promo GC?
I am not an accountant, and I am sure there are others here in the community who can offer their knowledge on the matter, but I'm not sure you can expense something that is donated to your business.
I may be totally off, but wouldn't that mean double counting the asset's value?
I would definitely reach out to your accountant for that.
If they were a donation to you, I agree with James.
If not then Janes, you are correct if you are the one giving the GC, it should be on a liability account.
Since the GC has a money value that will decrease your income, and since you are not getting money for the GC, it is to account for an expense, but you should not be categorized as income at redemption. Instead, you should be categorizing the redemption of the GC, as a Charity Expense, and every time these are redeemed your liability account should decrease by that amount until you reach 0 ones all GCs are redeemed. Then you will have your total of Charity Expense.
Now if these were to be sold it is a liability that increases with each sale, and it also increases Income at the time of sale, the income should be record at the time of sale, and when the GC is redeemed it should only be recorded as a decrease to the GC liability account. Hope this makes sense.
This is really good feedback and pretty complex. Since @janes is donating these as expenses to the business, sounds like they need to set up a liability account specifically for the GC and make a journal entry every time a card is redeemed until the account reaches 0? That way, there is a clear record, opening liability amount (total of all the donated GC), and a manageable workflow that can be easily reported.
@girlFRIDAY, you've worked with a ton of restaurants, how do they usually account for GC?