Question

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?

Forum|Forum|7 years ago
December 11, 2018
21 replies
78 views

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?

QuickBooks Desktop

M

Malcolm Ziman

Level 4

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.

qbteachmt

Level 11

"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.

L

ledger bench

Thanks for resolving my QuickBooks error.

Visit - [Removed]

IRMN

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

qbteachmt

Level 11

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.

qbteachmt

Level 11

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.

J

janes

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?

B

Bennyson

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?

qbteachmt

Level 11

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.

N

narathai1111

I understand that when you donate a gift card, you are essentially giving away nothing. However, is there a way to record the short-term liability without affecting sales or cash so that it is "on the books" and can clear when the gift card is used?

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