I was looking for rules under GAAP and the IFRS to figure out the requirements for recording the following:

Suppose a customer purchases $100 worth of merchandise and the company gives customers a $20 gift card if they purchase a $100 or more of their merchandise. How would a company account for this kind of transaction under GAAP or IFRS?

Also what if the card is subsequently redeemed or expires unused, and will it be accounted for since the card was some kind of promotion to get the customers to by more?

Normally this type of thing would be paid for, but you're giving them away. In a case like this, think of what you would do if you weren't skipping the cash. Like if someone did your plumbing for you and you gave him a gift card instead of paying. If you weren't skipping the cash, you'd debit your repairs expense. The cash you're skipping here is what you'd pay for advertising.

Although I would call this promotions. I call anything that's a give-away or any type of indirect advertising "promotions."

Since you weren't paid for them, there is the question of charging them when they're given away or when they're redeemed. I think it would be more fitting to charge them off at the time they're given away.

In which case you would debit the Promotions (or some expense). And then you credit a liability account, which you can just call Gift Cards. You have created the obligation to give merchandise away when someone uses a card.

When they're redeemed, debit the liability and credit Sales. If they expire... hmm, you could credit it back out of Promotions. I'm a little questionable on that part.

This is my opinion -- someone else may handle it different. As far as I'm aware, the only place where GAAP comes in is that things like gift certificates are liabilities, and you can't charge a revenue ahead of time if you haven't sold the merchandise yet. I don't recall if there's anything specific about if they expire.

If they are given away then you have not incurred an expense yet or received cash to incur an actual liability. So according to the government you can't claim them until they are actually redeemed, At which time you would debit the promo expense and credit the Gift certificate liability. Then record the purchase of the merchandise (or service) and debit the gift certificate liability account instead of the cash account.

As for gift certificates expiring, because cash has been paid for them, I believe the government has made a new rule where they are no longer allowed to expire. Some places do get away with charging something like a 2% decrease in their value after a specified length of time and call it an administrative fee. In that case you would credit a miscellaneous revenue account and debit the Gift certificate payable (liability) account. In this way it would incrementally decrease the amount of that GC down to zero. (you'd have to keep track of all Gift certificates on a spreadsheet though so you know exactly which ones are outstanding and for how long. (This spreadsheet should reconcile with your Gift certificate liability account.)

If years have gone by, at some point, they should come out of the liability account and get charged to some sort of revenue account since you did receive the cash, even if it was for doing nothing, you still got the cash, and the GC liability account would then be debited.

Under the scenario, the gift card has been given out because somebody has spent a certain amount of money on their purchase. I don't know how US GAAP treats this, but under IFRS it would be treated as the customer having purchased the goods AND the gift card.

Therefore, the accounting treatment would be:

Dr: Cash - $100
Cr: Revenue - $80
Cr: Deferred Revenue - $20

When the card is redeemed:

Dr: Deferred Revenue - $20
Cr: Revenue - $20

That's it at its simplest.

Cards with expiry dates are highly likely with this sort of promotion and shouldn't be confused with going into a shop and purchasing a gift card to give to somebody as a present. The accounting concept at play here is 'Substance over form'. If you have to spend a certain amount of money to get a "free" gift card, then the substance of the transaction is that you've been given a 'money off your next purchase' voucher rather than simply purchasing a gift card at its face value.