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Judi
Level 2

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?

20 Comments 20
Malcolm Ziman
Level 10

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?

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 15

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?

"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.

IRMN
Level 2

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?

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

qbteachmt
Level 15

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?

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 15

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?

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.
janes
Level 1

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?

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?
qbteachmt
Level 15

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?

"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.
janes
Level 1

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 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.
qbteachmt
Level 15

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 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?
janes
Level 1

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?

Yes! I think I've got it!  Thank you for you help. . . and patience!
angie4
Level 1

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?

So does this answer mean that we are really creating two credit memos at the end?
Bennyson
Level 1

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?

qbteachmt
Level 15

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.

narathai1111
Level 1

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?

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?

Musicman
Level 2

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?

From my research, the confusion this generates seems well out of proportion to the relative simplicity of the concepts involved (generally revolving about objective cost vs price vs subjective value). I was certainly confused to start with. After said research, here is my (final?) take:

 

• If the gift card is of a specific dollar value ("$50" - not "$50 off"), then yes - you maintain a liability account (GC Sales) and it's contra (GC Redemptions). You have an objective cash obligation/liability, and your financial statements must indicate that.

 

• If the gift card is for a specific tangible "widget" then you do the same, but ... the amount recorded would be limited to COGS (not FMV; not your usual "sale price"; not the price you plan on raising it to after the GCs are distributed; just your actual costs for the widget). When the GC is redeemed the amount can be removed from Liabilities and placed against a corresponding Expense Account – the liability is extinguished and an actual expense (vs Income) has now been realized. The loss of "anticipated profit" (eg. $9 on a $10 sale where COGS is $1) is irrelevant (for financial accounting purposes). Your liability was $1, not $10.

 

• If the gift card is for a specified service (eg. "One Free Haircut"), there is no "inherent" value/cost/liability beyond that required to deliver the service – but that amount cannot include your regular/indirect costs of doing business (eg. rent, phone line, insurance, etc). For haircuts, at most would be the pro-rated cost of products "consumed" during the service, though the materiality concept would likely render that negligible. Scissors, etc have already been fully expensed. Similarly with, for example, "lollipops" given to child clients.

 

      What you might (want to) charge for the service is irrelevant; the statement of liability is there to reflect your objective financial obligations. (As a consultant, this last bit was the hardest for me to get my head around – but am I really any more out of pocket if I did a 60 min session for free? For $50? For $200?). You can still track the quantity of sold/redeemed GCs for each service if that's important to you (it is to us), but the accounted value will likely be $0. The "giving away nothing" comment pertains.

 

• GCs which offer a  specified amount or percent "off" are not liabilities, even if the perceived "loss of profit" to the business could be calculated to the penny. If you closed shop, holders of those GCs would not be amongst your creditors (unless they had paid for the GC which gives them the discount). Redemption of these GCs are identified at the time of sale and recorded (contra income acct - Discounts) against the retail price.

 

• For all of the above, do note that you can additionally expense any and all costs directly associated with "Running"a GC promotion under Advertising – cost of the cards, if they are physical; flyers; FaceBook boosts; etc.

 

• Final point – do make yourself aware of the escheatment laws in your jurisdiction, and how to properly account for GC Breakage.

 

Hope that was of some help.

ledger bench
Level 1

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?

Thanks for resolving my QuickBooks error. 

Visit - [Removed]

ledger bench
Level 1

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?

Thanks for sharing the information.

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CarrieT1
Level 2

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?

my question is:  How do we know when that specific gift card is redeemed and when?  

JGiraldez
Level 1

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?

Thanks for the info and views.  I create the Gift Card as Product linking to Liability account. 

Created an invoice to customer who won a raffle where the GCs where donated. Added GC Product on the next line and typed the negative value so the amount on the GC would be subtracted from the invoice total. I am still not sure how to register the actual donation without resorting to journal entries.  Do I have to create a non inventory product item or service item linking Donation Expense or Advertising Expense in the Income Acct selection box? That way I the invoice the organization one line the GCs and the second the expense so i shows up that nothing is owed?  Sorry for my horrible writing.

GlinetteC
Moderator

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?

I'm here to share additional details on this, JGiraldez.

 

You can create a non-inventory account type item called Advertising expense and link it to the advertising expense account. Once done, create a Sales Receipt for the customer. 

 

Here's how:

 

  1. From the Customer menu, select Enter Sales Receipts.
  2. For line one, a select gift card for Item, Qty -1, the same amount (that is a negative one).
  3. Save the zero dollar transaction.

That should do it! If you have any other additional questions, do let me know. I'm here to assist you.

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