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Think about this for a moment, opening your favourite online store, dropping all the awesome goods in your shopping cart, getting to the checkout and… Find out that your Gift Card is not redeemable.
The website has new owners and they don’t have any records of the Gift Card. Annoying isn’t it?
The Gift Card is a present from your mother. You were so looking forward to this shopping yourself. Anger starting to build up.
It is just not fair. You are planning the number of negative reviews you will post? All the hours you will spend expressing your frustration on the web to destroy their reputation. And you execute!
Anyhow…
Offering Gift Cards can effectively help with building your business, as well as destroying it, if it is not accounted for correctly .
On the other end, the new owners purchased a business that didn’t record their liabilities. All their obligations to their customers they have recorded as sales.
It has a double effect. It makes business looks twice as good. Lowing liabilities and adding extra sales for where no goods were given to customers.
At this point you realise, that must be illegal on so many levels. Only criminals would do that. Wrong!
The percentage of business owners that can tell you the number and value of Gift Cards issued is very far from 100%.
“Do you know the number and the value of Gift Cards issued and not redeemed circulating out there at the moment?” How many store owners do you know that can answer this question?
If you know any business owners that sell Gift Certificates, send them a link to this article.
Let it be paper, plastic or electronic, a gift voucher is a form of exchange that you buy at a shop or online store and give to someone. It entitles the person to exchange it for goods and services worth the same amount at some time in the future.
For general Gift Certificates or Vouchers, because the goods or services have not yet been provided to the customer, under the Goods and Services Tax Ruling GSTR 2000/D22, GST is not realised until the gift voucher is redeemed. Hence, a business needs to acknowledge all general gift vouchers purchased as a liability.
Legal Requirements for Gift Vouchers
For Australia:
- Minimum three year expiry period from the date the card is sold (mandatory).
- Expiry date must be shown clearly.
- Activation fee, account keeping fees and balance enquiry fees cannot be charged.
Above requirements apply to all cards sold after 1st of November 2019. There are some exclusions to three year period, listed in this link. You can be fined if you breach the law.
Bookkeeping Record
There are two steps to the gift cards process: the purchase of the voucher and the redemption of the voucher for goods or services.
- Create a liability account to record the purchased vouchers (gift cards).
- Record the sale of the gift voucher/cards. The journal entry for the sale of Gift Voucher:
| Debit | Credit | |
| Bank (Asset) | $200.00 | |
| Gift Vouchers (Liability) | $200.00 |
- Redeem the voucher and recognise the sale. The journal for the redemption of a Gift Voucher or Certificate would be recorded as follows.
| Debit | Credit | |
| Gift Vouchers (Liability) | $200.00 | |
| Sales (Revenue) | $181.82 | |
| GST Collected (Liability) | $18.18 |
Integrated Cloud Bookkeeping Systems Make Things Easy
Automation and proper point of sale (POS) integration will make your life easier. At the end of the day’s till closure, these figures can be seamlessly synchronised to your Balance Sheet as well as accurately and at the right time, report sales in your P&L. Proper integration strategy is required and the effect on overall compliance and the reporting processes needs to be assessed. We specialise in the integration of POS systems for businesses around Australia, if you need help integrating, please give us a call.
Here are two examples of Gift Voucher Liability integrations:
- Vend and Xero
- Kounta and Xero
Any process that involves multiple variables and multiple systems (POS, POS operators and accounting systems) requires regular monitoring. Processes within companies change and the outcome can be changed again if the integration is not adjusted accordingly.
References
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