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Established Member

We donate gift cards to charitable organizations to be raffled by the organization. The winner then receives a service from us, no cash exchanged, how do I record in QB?

We have gift cards that can be purchased so that an individual can get a service from us. Occasionally we will contribute one of these gift cards to a charitable organization for them to raffle off. We do not receive, no give any cash. How would I record the transaction in QB when the gift card is redeemed?

13 Comments
Established Community Backer ***

The sale of a gift card is not really a sale. It creates...

The sale of a gift card is not really a sale. It creates a liability. The sale happens upon redemption at which time the liability is extinguished. . But if you are donating the gift card, you can put the debit to Promotional expenses instead of cash.  You still have the liability until it is redeemed.

Established Community Backer ***

"The sale of a gift card is not really a sale. It creates...

"The sale of a gift card is not really a sale. It creates a liability."

It is a Sale; you either have income now or later, depending on the IRS regulations and your own accounting needs. If you really want to dive into the IRS regs on gift cards and revenue recognition, you also need to know the gift card issuer's accounting requirements and financial policies. This is not a Tax Rule Guidance forum, so I wasn't intending to dive deeply into the variations. Web reading:

https://www.plantemoran.com/explore-our-thinking/insight/2016/08/the-gift-of-complexity-recognizing-...

https://www.cbiz.com/insights-resources/details/articleid/3463/irs-clarifies-gift-card-revenue-defer...

https://www.thetaxadviser.com/issues/2013/nov/clinic-story-05.html


This topic was about the Giving, not the Sale, of a gift card. Posting to Liability offset as Expense creates the same thing I described, because you have to Recognize the liability as income eventually, even if you Park it as liability at first, under the Deferred option.

Giving: Credit Liability $100 instead of income, on the Invoice that shows FMV of this public donation as public support and Debits AR

Write off that invoice: Credit AR by posting the write off as Debit Advertising Expense $100

Then, they come buy something:

Income $100

Apply Liability $100

Which means what you have here is Gross $100 for Income against the Advertising expense of $100, but in different Timeframes. That violates the Matching Principal. And, posting as Expense in advance of the Income makes no sense. You didn't Incur a cost for a gift card you issued.

When you give Materials, labor or a Gift card, you waived a sale and forfeited profit. There is no Additional Cost for giving your own gift card.

Senior Explorer **

Record them as a sale and run the offsetting side of the...

Record them as a sale and run the offsetting side of the sale as a charitable contribution.

Established Community Backer ***

When you Donate a gift card, you have No Sale and No Writ...

When you Donate a gift card, you have No Sale and No Write off. You made up that entry out of Nothing. If you intend to enter the Sale, which is Gross, you also need to Write it off, as if that is 100% discounted.

Then, the Card is used. That means the Actual Sale won't be paid. That means the Actual Sale is also Written off, the same as the Amount of the gift card is the Discount amount. This specific event might not be 100% discounted, of course.

You cannot Write Off Lost Profit; that is where people get confused. You are Forfeiting the right to profit. Your Lost revenue is offset completely, not Reported as if that is Real.

You already have Real Expense; goods and services, such as Payroll and Products are your real expense. It costs you  Nothing additional to give away a Gift Card, and nothing to Give away the sale to the value of that gift card.

Established Community Backer ***

The Sale of Gift Cards is income to you, and when redeeme...

The Sale of Gift Cards is income to you, and when redeemed, that is the same as a Discount or Write off. The same is true for the Giving Away of cards, with no Sale = still a discount or write off, when redeemed.

You will simply be Forfeiting a sale, and that also means any profit. Your Expenses are already incurred as part of the operations, such as material costs, labor, electricity, rent, etc.

You are describing a 100% discount, like this:

In QB, make an Invoice for Gift Cards, the same as if you are Selling it to that organization. This gives them Proof of the value of the donation = public support to them.

Meanwhile, you create and use a Gift Card Donated item (other charge type) and link it to the same Income account you use for Selling gift cards, if you have one just for this. Put that item on a Credit Memo and Apply this to the invoice. Now you "wrote off" this "sale" and there is no Income for this giving.

When the card is redeemed, you enter the sale as usual. Then, use that same Gift Card Donated item on the credit memo (if you use Invoicing for sales) or directly on the Sales receipt (here it needs to be entered with a Negative value), to show it Reduces the amount owed on this sale.

Here is the result of the activities from an Accounting perspective:

You "donate" $100, as Income <== the giving invoice

Now your Income gross = $100

You "Write off" the $100, because the organization doesn't really Buy it from you <== the Credit Memo

Now your income Net = 0

Then, you make a Real Sale of $100 <== the people that got the gift card from the raffle or silent auction

Now your Income gross = $100

They hand you the gift card, which really is no different than how you Always handle gift cards, and this is another "Write Off" either as credit memo or as a negative on the Sales Receipt

And Now your income Net = 0, or No Change.

Because there was no sale, really.


Only a C corp really has a Charitable Donation expense.


You have a Write Off.
Established Member

Please tell me how I am doing this wrong.  I donate a  GC...

Please tell me how I am doing this wrong.  I donate a  GC as a promotional GC from my restaurant and record in a Liability Account and expense it as Advertising. Then when the customer comes to my restaurant and buys a meal and pays with that GC, I am recording income which cancels out my advertising expense. I am now at Net "0" with no expense for my advertising. How can I record a promo/donated GC redeemed different than a "sold GC" so I still benefit from the advertising expense?
Established Community Backer ***

"Then when the customer comes to my restaurant and buys a...

"Then when the customer comes to my restaurant and buys a meal and pays with that GC, I am recording income which cancels out my advertising expense"

It is supposed to Clear your Liability.
Highlighted
Established Member

It is clearing my liability account, however I am also re...

It is clearing my liability account, however I am also reporting income for the meal that was "purchased" with a GC that I donated and did not receive income for. When I give away a $100 GC, it is entered as a Liability and as Advertising Expense. When the customer redeems that GC, it comes out of the liability account but now I am taking income which off-sets the advertising expense I previously took. I guess another way to ask this question is - how should "sold GC" be entered differently than donated/promo GC that I don't receive money for? Both types end up as income when they are redeemed.
Established Community Backer ***

"It is clearing my liability account, however I am also r...

"It is clearing my liability account, however I am also reporting income for the meal that was "purchased" with a GC that I donated and did not receive income for."

You never had a Real Expense, without creating phony income, in the first place. You Donated the GC, and that means there is Nothing to write off as expense unless you Pretend to have Sold it. That's item 1. Second, you "sold" a meal with 100% discount, by the use of the GC. That is Another Wash.

What you Only Have is the cost of Food and payroll labor. All the rest is you, trying to create something out of nothing. You don't get to write off Lost Profit. At most, you list Gross Income and Gross 100% discount.

No matter how much stuff you enter, you never had Income at all. You would have income if you Sell GC. Income = Liability, and later, the meal still is 100% Discounted by applying the liability.

Does that help?
Established Member

Yes! I think I've got it!  Thank you for you help. . . an...

Yes! I think I've got it!  Thank you for you help. . . and patience!
Not applicable

So does this answer mean that we are really creating two...

So does this answer mean that we are really creating two credit memos at the end?
Active Member

Re: We donate gift cards to charitable organizations to be raffled by the organization. The winner then receives a service from us, no cash exchanged, how do I record in QB?

If I gave gift cards to a charitable organization, would this be an appropriate journal entry?

 

DR Charitable Contributions (Expense)

 

CR Gift Card Payable (Liability)

 

And when people redeem the gift cards, just

 

DR Gift Card Payable

CR Sale

 

Would that be adequate?

Established Community Backer ***

Re: We donate gift cards to charitable organizations to be raffled by the organization. The winner then receives a service from us, no cash exchanged, how do I record in QB?

It's not appropriate for a cash basis entity to try to post artificial Expense against Liability. it doesn't cost you anything. The eventual "sale" where the card is redeemed is essentially a Discounted sale.

 

You need to speak with your own CPA for how this applies to your operations.