I am doing the books for some salons and I had a question about gift card sales. I know that gift card sales are a liability, and then when used, the liability will decrease and it will be put to income. However, what to do when there is a discount on gift cards?


Let's say we sell a $100 worth gift card for $80. In that case, would the journal entry be:
Cash 80
GC Liability (100)
?? 20


I've read that you need to do a contra-income for the 20? Is this true? If so, let's say we only sold gift cards, then there will be a negative deficit in the income statement and the net income will be all negative. I ask because they do give a lot of discounts on the gift cards and it will make their net income way lower.


In addition, if the salon gives away free gift cards, would it be categorized as:
Donation expense 100
GC Liabilty (100)




Thanks

At the sale of gift card:
Dr. Discount expense: 20
Dr. Cash 80
Cr. GC Liability 100

When services are provided, record full price without discount, say $20/each time.
Dr. GC liability 20
Cr. Rev 20

Do the same for GC giving away.