1. © 2015 Cengage Learning. All Rights Reserved.
LESSON
9-2
Accounting for Gift Cards
Learning Objectives
LO3 Journalize transactions for gift cards.
LO4 Record an adjusting entry for gift card breakage.
LO5 Describe how gift card breakage is reported in the financial statements.
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2. Recording the Sale of a Gift Card
Lesson 9-2
Recording the Sale of a Gift Card
LO3
The use of gift cards has increased dramatically in recent years.
The sale of a gift card does not result in revenue.
Until the card is redeemed, the outstanding balance of the card is unearned revenue.
Websites and smartphones enable virtual gift cards to be purchased, redeemed, and tracked electronically.
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3. © 2015 Cengage Learning. All Rights Reserved.
Lesson 9-2
The Credit Card Accountability Responsibility and Disclosure Act of 2009
LO3
The Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit CARD Act) includes provisions designed to protect the value of gift cards.
Retailers are not allowed to charge fees on unredeemed cards for 12 months.
Unredeemed cards cannot be canceled until five years after the date of issuance.
© 2015 Cengage Learning. All Rights Reserved.

4. Recording the Sale of a Gift Card
Lesson 9-2
Recording the Sale of a Gift Card
LO3
Gift Cards Outstanding
625.00
April 1. Received cash for the sale of gift cards, $ Receipt No. 522.
Cash
625.00
A Current Liability Account
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5. Recording a Sale with a Gift Card
Lesson 9-2
Recording a Sale with a Gift Card
LO3
August 2. Customers redeemed gift cards for the sale of merchandise, $320.00, plus sales tax, $19.20.
Memorandum No. 325. 1
Debit Gift Cards
Outstanding
Credit Sales Tax
Payable 3 2
Credit Sales
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6. Accounting for Unredeemed Gift Cards
Lesson 9-2
Accounting for Unredeemed Gift Cards
LO4
Some gift cards are never redeemed or only partially redeemed before discarded or lost. The value of unredeemed gift cards is called breakage.
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7. Reporting of Gift Card Breakage
Lesson 9-2
Reporting of Gift Card Breakage
LO5
Breakage revenue is a normal part of business operations.
Most businesses elect to include breakage revenue with other sales accounts instead of including the amount as other revenue.
Breakage Revenue is listed separately on the income statement to allow users to compare the amount of revenue from sales with the related cost of merchandise sold.
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8. Lesson 9-2 Audit Your Understanding
1. How do plastic and virtual gift cards differ in the information they provide to the retailer?
ANSWER
Virtual gift cards, unlike plastic gift cards, enable
the retailer to collect the name and contact information of the cardholder and track the unused card balance.
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9. Lesson 9-2 Audit Your Understanding
2. How does the Credit Card Accountability Responsibility and Disclosure Act of 2009 protect gift cardholders?
ANSWER
The Credit CARD Act does not allow the retailer to
charge fees on unredeemed cards for 12 months.
Unredeemed cards cannot be canceled until five
years after the date of issuance.
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10. Lesson 9-2 Audit Your Understanding
3. When is a sale recorded from the issuance of a gift card?
ANSWER
A sale is recorded when a customer pays for merchandise using a gift card.
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11. Lesson 9-2 Audit Your Understanding
4. In what section of the income statement is the account Breakage Revenue reported?
ANSWER
Other Revenue.
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12. Lesson 9-2 Audit Your Understanding
5. Identify information related to gift cards that is disclosed in the notes to the financial statements.
ANSWER
The notes to the financial statements include the
policies for how and when breakage revenue is
recognized, the amount of unredeemed cards, and how gift-card-related accounts are presented on the financial statements.
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