[boule10]

Hi there, I need some guidance for the following, which can be confusing.

Company A is selling vouchers, which the client can use as 1 night in a hotel. When used, the company A will pay the hotel.
Technically the company is selling services to the hotels, and the revenue is recognised only when the voucher is used. The revenu is the difference between the sale price of the voucher (cash received from the client), and the cost paid to the hotel(when the voucher is used).

Say -the sale price of the voucher is 40eur,
-inventory cost of 1 voucher is 5eur
-company A will need to pay 30eur to the hotel when the voucher will be used.

Here are the journal entries I try to complete:

Sale of voucher:
Dr Cash 40
CR?

Client use the voucher in hotel:
Cr Revenue (sale) 5
Cr cash 30
Dr??

Dr expense (COGS) 5
Cr inventory 5

Thanks a lot for your help on this

[morgaine300]

I've never seen anything like this, but I'll tell you what I can.

First, in the second entry the revenue is 10. The 5 is the gross profit on it, but that'll be taken care of on the income statement by subtracting that expense you charged from the revenue. But gross revenue is 10. So the 10 plus the 30 cash will be the 40 total.

I guess you could put the 40 into an unearned revenue, but really, only 10 of it is unearned revenue. Whatever it is, it's a liability. 10 of is actually is unearned revenue and 30 of it is like a payable to the motel if it's cashed in. You could actually split it and record it that way.

You could also keep it together and call it something like Vouchers Outstanding, which doesn't try to imply anything other than it's a liability. Whatever you credit it to is the same account(s) you'd debit when it's sold.

I guess a good question is whether this is for a real company? I'm so used to everyone bringing homework on here. If this is a real company it kind of opens up being a little more free to call things as you see fit - in which case you just need to make sure it's a liability account and call it something that sounds appropriate.

Also, if it's for a real company, you need to find a way to deal with ones that expire unused, or if they don't expire, making some kind of estimate and allowance for ones that probably won't get used.

[boule10]

Thanks a lot for this reply, it helps!
This is for a real company, and I am trying to figure out the big lines first,

How would you see the entry in the inventory ledger and the expense account?

As I see it, when the voucher is used, we recognise the expense:

Dr expense (COGS) 5
Cr inventory 5

Is that right? Also is COGS the appropriate term here?

Thanks

[morgaine300]

There wasn't any problem with that entry. COGS is OK, but if it were me, I'd probably call it Cost of Sales (more generic) rather than Cost of Goods Sold. While you are selling something, it's not like merchandise inventory. But a minor technicality in the scheme of things. I see COGS used for all sorts of stuff where it really doesn't fit.

[boule10]

Thank you, that's helpful