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    lmdalton's Avatar
    lmdalton Posts: 1, Reputation: 1
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    #1

    Feb 19, 2010, 07:58 AM
    Redeem advertising & promotional gift certificates
    What is the journal entry to redeem advertising and promotional gift certicates which were not paid for?
    morgaine300's Avatar
    morgaine300 Posts: 6,561, Reputation: 276
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    #2

    Feb 20, 2010, 01:51 AM

    The credit should be to a liability account since it's deferred revenue. I usually just call it Gift Certificates. If you have very few but have other types of deferred revenue as well, you could just lump it into a cover-all Deferred Revenue account.

    The debit... charge it to what it actually is: advertising and promotions. You still gave something out of value in exchange for it.
    charlene1953's Avatar
    charlene1953 Posts: 2, Reputation: 1
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    #3

    Sep 17, 2010, 06:25 AM
    Morgaine, if the gift certificate is promotional, there is no deferred revenue when the recpients who won or was given the certificate does not pay. So, what would be the entry to record a gift with no revenue involved?
    morgaine300's Avatar
    morgaine300 Posts: 6,561, Reputation: 276
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    #4

    Sep 17, 2010, 04:00 PM

    Please do not post your question so many times - it just confuses people. (Although your one post was a subject, not a "question.")

    It doesn't matter what it was for or that they were not paid for it.

    If you had paid cash for the advertising/promotion, you would be giving something of value to get a service from someone else. That service would be promoting your company (advertising) and would be an expense.

    In this case, something else of value was given instead of cash: a claim to come back and get services from this company. That gives this company the obligation to fulfill this claim - they "owe" a service/goods to the bearer of the gift certificate. That obligation is a liability.

    When someone comes in to use the gift certificate, the normal service (or delivering of goods) will occur, which will be earnings on the part of the company. They are now fulfilling that obligation of the service/goods.

    When they perform services or sell goods, they get something of value in exchange for it -- generally cash (or promise of cash). In this case, they got something else of value: advertising.

    So the exchange still took place - it just is a little obscure.

    You and I could perform a service for each other. If I do your taxes for you, but instead of paying, let's say you fix computers, so you agree to come fix my computer for free. In a business, that isn't a wash. (For tax purposes, it's not a wash either.) I would have to record earnings for the tax work I did for you. And I would record the computer repair as an expense, just as though I paid you. And you would have earnings for doing the computer repair, and an expense for the value of the accounting work I did for you.

    It's an exchange of services and still involves revenue for the one doing the earning and an expense for whatever the company got for it.

    Your confusion is insisting that revenue and cash are one and the same - no cash, no revenue? Nope. A textbook would never teach this. It's like "skipping over" a step and companies do it all the time. You have to learn how to see everything for what it is. Let's run it through as though cash were exchanged:

    Dr. Advertising Expense
    Cr. Cash

    There we just flat-out paid for advertising. The promoting company takes the cash and uses it instead of a gift certificate. So someone comes in and now wants your service. They pay you the cash they got:

    Dr. Cash
    Cr. Revenue

    Now cancel out the cash and what do you have left? An expense and a revenue. We "skipped over" the cash that never happened, but it comes out the same in the end. Instead of cash, we ended up with an obligation (unearned revenue) that had to be fulfilled when the gift certificate comes in.

    My original answer stands.
    jeffykessler's Avatar
    jeffykessler Posts: 1, Reputation: 1
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    #5

    Apr 25, 2011, 09:06 AM
    Assume that you give a $20 gift card if they spend $50. The original entry is going to be:

    Dr. $50 - Cash
    Dr. $20 - Advertising or Cogs Acct.
    Cr. $50 - Revenue
    Cr. $20 - Deferred Revenue

    When they redeem their free $20 gift card you then:

    Dr. Deferred Revenue
    Cr. Revenue

    But, what if they never redeem the gift card? What entry do you make to clear out deferred revenue. If you don't put an expiration date on the gift card, it seems weird to just recognize the revenue when you didn't get anything for it or spend anything for it in reality. So, do you just debit deferred revenue and credit back the expense or COGS taken at the beginning to negate that whole portion of the transaction?

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