How to enter sold and redeemed gift cards

Hi there, @ndsue21. 

Thanks for choosing QuickBooks for your business. I'm delighted to help you record the sales and redemption of the gift cards when customers use them to purchase.

First off, you'll need to create a liability account called "Gift cards". Then, create a service item using the same account selected as the income account named gift card. With this, you can track the amount in that account.

After that, create a non-inventory type item called advertising expense and link it to the advertising expense account. 

To issue a gift card, create a sales receipt to record the sold gift card for the customer. Here's how:

1. Go to the Customers menu.
2. Select Enter Sales Receipts.
3. Fill in the customer's info, including the Date and Sales No.
4. Line one, Gift card item, quantity, and amount. 
5. Click Save & Close.

Then, create an invoice for the redeemed Gift card. Here's how:

1. In the Customers menu.
2. Select Create Invoices.
3. Fill the fields with the customer's info like the Date Invoice #, Bill to/Sold to, and Terms.
4. List the sold item on the first line. Then enter the gift card item on the second line with a negative amount.
5. Select Save & Close.

Also, you can consult an accountant for some guidance on what account to use for the item.

Once done, you can create a sales receipt to record the sold gift card for the customer. Here's how:

1. Go to the Customers menu, and then select Enter Sales Receipts.
2. Fill in the customer's info, including the Date and Sales No.
3. Line one, Gift cards item, quantity, then amount.
4. Click Save & Close.

Then you can create an invoice for the redeemed Gift card. Here's how:

1. In the Customers menu, select Create Invoices.
2. Fill the fields with the customer's info like the Date Invoice #, Bill to/Sold to, and Terms.
3. List the sold item on the first line. Then enter the gift card item on the second line with a negative amount.
4. Select Save & Close.

I've also attached an article to help you with the steps on running customize the financial report for your future reference: Customize company and financial reports. 

I'm always around here if you need further help with recording transactions in QuickBooks. Take care!

Hi ndsue21,

Hope you’re doing great. I wanted to see how everything is going about recording the sold and redeemed gift cards you had yesterday. Was it resolved?

 Do you need any additional help or clarification? If you do, just let me know. I’d be happy to help you at any time.

Looking forward to your reply. Have a pleasant day ahead!

I haven't had a chance to do anything with them yet. I am in full-day conferences and won't be able to enter them until Friday. I will check back if I have any issues.

I have a question Catherine, how do you track the gift cards as it relates to who bought and redeemed them?

For example,

John Smith buys a GC for $500 for his girfriend Sandy Summers.
Sandy Summers comes in to redeem the gift card.

I realize the GC liability account will increase upon the sale of the SC, then decrease upon redemption by the amount of the gift card, but customer records will show that John Smith has a $500 gift card account and Sandy has a -$500 account.

In other words, what is the process for transferring gift cards between the purchaser and redeemer? Whose name should go in the Sales Receipt line for each transaction?

What if it is a multiple gift card sale? For example, we sell 10 Gift Cards to a charity, then 10 different customers redeem the gift cards. Should that be 10 different customers, or one? This gets complicated by the fact that we need to track commissions by sales reps (and gift cards lower their gross sales) and the fact that customers redeeming may also purchase other items. Do we need to transfer the gift cards to these customers? When?

Thanks,

Doug

Thanks for joining us here today, @doug_martin.

I'll share some information about recording gift cards (GC). First, you'll need to create an account for your GC (Other Liability and expense accounts). After that, create an item for the gift card and for the advertising expense. This is to offset the amounts when GCs are claimed. Let me guide you how:

To create an account:

1. Go to Lists at the top and choose Chart of Accounts.
2. From the Account drop-down, select New and then Other Current Liability for the Account Type.
3. Enter the Account Name (Example: Gift Card).
4. Click Save & Close.

Next, create a service item to link to the liability account.

1. Scroll up to the Lists menu at the top and then tap Item List.
2. From the Item drop-down, select New.
3. Choose Service as Type and enter the Item name (Gift Card Item).
4. Under the Account, pick the gift card liability account.
5. Click OK.
6. Then, create a Non-Inventory type item named "Advertising Expense" and link it to the advertising expense account. 
7. Click OK.

Now you're ready to issue the GC. You'll have to create a sales receipt for the one who buys it (In your example, John Smith). In the sales receipt, the first line item should be the gift card item and the next line is the advertising expense item in negative form.

To redeem the GC, you'll need to create an invoice named after the one who redeems it (Example, Sandy Summers). In the invoice, list the items sold on the first line. Then, the gift card item on the second line with a negative amount.

See attached screenshots below.

About the multiple gift card sale, it depends on how you track it in QBDT.  You can have 10 different customers or one. For the different customers, you'll want to create one parent customer and the rest of the customers as sub-customer. This way, you can keep track of how many GCs are now being redeemed. Learn more about it in this article: Track job costs in QuickBooks Desktop.

 Additionally, here's a link that covers all the tasks you can do when using QBDT. Look for responses that fit your concerns.

Don't hesitate to reply anytime if you still have questions or concerns with gift cards. I'm more than willing to assist you. Take care and have a good one.

Hi Katherine Joyce,

I am confused about the advertising expense part of these instructions!  I am new to the gift card/certificate world and want to make sure that I am doing this correctly. Also in my many many years of using quickbooks we have always created invoices (for both service work and on the spot purchases).  If I use the sales receipt for the purchase of a gift card, will that mess up any of my accounting (or just add another line)? 

Thank you, 

Jilisa

Hey jghareeb777!

Thank you for joining the QuickBooks Community! For this situation, it would be best to consult with an accountant to see if issuing a sales receipt for the purchase of a gift card will affect your accounting. If you don't have an accountant, no need to worry! QuickBooks offers a ProAdvisor service where you are able to connect with experts within your area. Here's how: 

1. Select this link: Find an accountant.
2.  In the Find an expert in section, choose what you're looking for, then use your search field to enter a City or ZIP code.
3. Click Search.
4. Look through the options and select one that suits your needs.

If you have any other questions, I'm just a post away. Have a wonderful day!

Hey Jilisa,

My interpretation of the example, I feel, is that the gift card was given to the customer and no cost.  In other words, the gift card gets issued, yes.  However, the business issuing the card is not receiving any money for it (making it a true gift card!).  In the event that you were selling a gift card and receiving money for it, you would just omit the advertising element completely and just leave it at the one line for the gift card.  

Utilizing the sales receipt function versus the invoice function has only one true difference.  That difference is that a sales receipt is used generally for cash sale transactions.  You sell something, the customer pays right away.  With the sales invoice function, you are selling something..yes, but, the difference is that you, the selling business, don't receive money right away for your product or service you have sold; rather, you create an Accounts Receivable.

In the event of a sale where the customer utilizes a gift card, I would create the additional line item on the sales receipt that uses a product or service item that is mapped to the liability account for the gift card.

The problem I have with these "solutions" is if you use the sales receipt or sales invoice for the "sale" of a gift certificate, QBO wants to record it on Line 101 of the sales tax report.  However a gift certificate is deferred income until it is redeemed.  How do you work around that issue?

Thanks for joining in, @lcallison. 

When you issue a gift card in QuickBooks, you'll use a sales receipt to record the sold gift card for the customer. Then, create an invoice for the redeemed Gift card. 

To ensure your books are accurate, I'd recommend consulting with your accountant for additional guidance.

For future reference, read through these articles that provides information about handling your sales, customers, and reports:

• Sales and customers 
• Create and manage reports

Feel free to message again if you have additional concerns. We're always here to help. 

I am an accountant.  Gift certificates are not redeemed as soon as they are purchased.  Some are never redeemed.  So the sales tax report Line 101 is either over or understated using your solution to recording the sale and redemption.

talk to your accountant of course, but here is how i track my gift certificates in a very simple way

we use a single customer per register Register1 to track sales at end of the day.

we have an Other Current Liability account Gift Certificates Outstanding

we created an item of type other charge Non Tax (its liability not a sale) which uses the Gift Certificates Outstanding account.

In daily practice here is how we record the gift certificate sale :

1) create sales receipt for customer Register 1

2) add a line item Gift Certificate and the associated QTY, RATE and/or AMOUNT.

3) save & close

this adds to the liability account Gift Certificates Outstanding

then to REDEEM a gift certificate:

1) create a CREDIT MEMO for our customer Register 1

2) add a line item Gift Certificate and the associated QTY, RATE and/or AMOUNT. being redeemed

3) save & close NOTE: no money change hands in this operation. its an accounting action only. the money is in the bank from when the Gift Certificate was purchased.

4) and also use credit to give refund (click <enter>)

5) issue the refund in the next popup. (accept defaults, click <enter>)

NOTE: I blanked out my bank account info :)

Check your liability account and it will have decreased accordingly.

Thank Mike, this looks like QBDT not QBO.  Do you have instructions for QBO?

Yes for quickbooks desktop. 
ive not used QBO so can’t say the differences.  I’d imagine most of it would be similar. 

This is not clear to me at all. 

I sell my products through Shopify - all products whether gift cards or physical inventory. 

I do not manage my inventory in QBO - only the sales/revenue. Shopify manages my inventory and records all the details of each transaction. I do not want it duplicated with QBO invoices and such. I would be happy to record a monthly journal entry to state this is what I sold in gift cards this month, this is what I redeemed, this is my outstanding liability in total gift card sales since we opened, etc. I cannot seem to get an answer for this in all the forums I search. Can you please help me? I want a specific example of a journal entry; what is debited, and what is credited. I have two gift card accounts in my chart -- Gift Card Expenses and Gift Cards Outstanding. If I need to rename one, that's fine. I was trying to follow the advice of a video but I don't have any ownership for Gift Card Expenses. I actually find that harder to understand. Shouldn't it be something like Gift Card Revenue or Gift Card Sales? Of course, if there is a way through integrations this can happen automatically, all the better. Thank you for your help! 

@LaCuisine 

There is a Shopify integration but I have not used it.  The only account you need for gift cards is a liability account called "Outstanding Gift Cards" or "Gift Card Deferred Revenue" or something like that.  That liability account should always have the amount of outstanding, unredeemed gift cards in it.  When you sell gift cards, it increases (credits) the liability account and when they are redeemed, the liability account is decreased (debited). 

Below is an example of a journal entry when you sell a $100 gift card in Shopify (When Shopify takes out your merchant fee prior to the payout)

Here is an example of a journal entry when a $100 gift card is redeemed:

This is very helpful except in the situation that my Shopify payouts already identify the 'sales' and 'cost of goods sold/merchant fee.' If I create a journal entry as shown it would lead to double reporting - would it not?

@LaCuisine 

If Shopify is creating the journal entries for you, I guess I'm confused by the nature of your original questions/post.  The bottom line is that when a gift card is sold, it is not a sale, it is an increase in your gift card liability (credit) because you have the customer's money (debit) but you still owe them something.  When gift cards are redeemed, then the liability is reduced (debit) and you record the sale (credit).  If Shopify is creating a journal entry to record that - great.  If Shopify is creating a journal entry recording the sale of a gift card as sales income, that is not correct.  Also, when you a customer redeems a gift card for merchandise, there should be an additional entry that reduces inventory (credit) and books the cost of goods sold expense (debit).

To clarify, Shopify is not creating a journal entry with the sale. The deposit is made to my bank account daily. When the deposit integration is completed, Quickbooks is entering it as a sale because funds have been deposited into my bank and is noting the transaction fee as Cost of Goods Sold. Therefore, if I wrote a journal entry to designate the Gift Card Liability with the "sale" as the opposite side, wouldn't I be duplicating the "sale"?

There are 4 steps to this process and if I read this correctly, the first two are the same as the last two. I'm confused.... Can you please help?

HI Doug,

If you do not have a POS system that tracks gift cards, most people just keep a running journal of liability (sold and redeemed) and only know a overall total, not per certificate/card total. In most instances "who" buys or redeems gift cards is not that important in retail situations. Especially since the purchaser may not be the redeemer. However, if you wanted to track each certificate/card individually, it may be more advantageous for you to track them by number. That way you know which gift certificates/cards have been redeemed, what their balance is or which are still outstanding. In addition, if you were to track by "customer" you have to create a "customer" for each person you sell one to. This can make your customer list unnecessarily large and if you do track customer accounts (sales by customer) for another reason, this would make reviewing these accounts tedious. Just a suggestion.

I have another query relating to gift cards. We are a non profit and there are two types of transactions we regularly encounter.

1. Private donors will sometimes give us gift cards to use to support the programs we run. So in this case, we didn't spend any money on them but we will use these GC's to buy groceries for the Food Bank. How would we enter GC's that are donated from a third party?

2. We also purchase Gift Cards to give to program participants when we have to close the Food Bank for a week. This way they can go and buy groceries themselves. So how would we enter this? And let's say we purchased 400 GC's but only gave away 370 of those GC's and decided to use the 30 leftover GC's to purchase food for our programs. How would this get accounted for?

Thanks for any help you can provide.

I read your advise on gift cards, and I have a follow up question.  How do I deposit the amount that was paid for the gift card.  A customer bought a gift card to give as a gift.  She used her credit card.  I followed the steps to make the accounts, and my gift card short term liability account has the right amount in it, but I don't know how to receive a payment.  Can you help?

I enter them as a sale in a sales receipt. Keyboard shortcut Alt-US

this ads to undeposited funds which I then do a deposit. Alt-BD