Ask the Expert - Gift Certificates - Accounting Software Secrets
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Ask the Expert – Gift Certificates

Ask the Expert – Gift Certificates

Ask the Expert – Gift Certificates

Q – How is the best way to handle gift certificate both when they are issued and when they are redeemed? Submitted by Cham

A – The first issue to address relates to the state law: In some states it is possible to put an expiration date on gift certificates; in other states, it is not permitted to have a gift certificate expire. 

With either situation the majority of the processing through QuickBooks will be the same:

  1. Create an Account by choosing Lists > Chart of Accounts called Gift Certificates Liability as an “other current liability” type account.  This account is current because the majority of the gift certificates are assumed to be redeemed within a year or less.
  2. Create an “other charge” type item by choosing Lists > Item List called Gift Certificates.  For the Account choose Gift Certificates Liability.
  3. When a gift certificate is issued (i.e. sold) enter it on the sales transaction form using the Gift Certificates item and the certificate number first in the description.
  4. When a gift certificate is redeemed (i.e. used to pay for the sale) enter the amount as a negative on the sales transaction form using the Gift Certificates item and the certificate number first in the description.
  5. The net effect in the Gift Certificates Liability account will be a running balance of the amount of gift certificates that have been issued but not yet redeemed.
  6. If the state law permits gift certificates that expire or if you would like to see what gift certificates are outstanding, it is possible to create a report to provide that information.
    1. Start with Reports > Accountants & Taxes > Transaction Detail by Account.
    2. Modify the report to filter for only the Gift Certificates Liability account.
    3. Modify the report to filter for cleared “no”
    4. Choose total by: Total Only
    5. Choose sort by: Memo – this will put all the transactions in order based on the gift certificate number as captured in steps 3 and 4 above so that by scrolling through the list it is possible to see which certificates have not been redeemed.
    6. Memorize the report for future use. 
  7. Reconcile: The report created above is used for reconciling the liability account
  8. Return to the memorized report created in 6 above and only those outstanding certificates will remain. 
  9. If the state law permits gift certificates that expire, change to sort by: date and that will put the transactions in date order so that an entry can be made to “write off” the expired certificates.  Be sure to enter the amounts to the Gift Certificates Liability account individually with the certificate number first to permit easy use of the report in the future.  If the volume of transactions makes that not practical, one journal entry can be created but the recommendation would be that the account be reconciled again immediately to clear those transactions from the report.
 

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