Gift cards stand out as a top choice for boosting sales and marketing strategies in ecommerce. They work wonders during the holiday frenzy by keeping sales going post-shipping deadlines. While some companies even spice things up by refunding customers with gift cards instead of cash, ensuring the sale isn't a miss.

From a financial viewpoint, gift cards enable businesses to pocket money in advance and lock in future revenue. Despite their sales and cash flow perks, managing gift cards can pose a puzzle for accounting teams.

What Are the Main Challenges in Recording and Reconciling Gift Cards in Ecommerce?

The sheer number of gift cards can be overwhelming for an accounting team to track and organize. There are a lot of moving parts to a single gift - the original sale, the full or partial redemption of that gift card, and in some cases, a refund back onto the gift card.

We also see companies creating gift cards for marketing initiatives or giving them to partners or employees. These gift cards can be challenging to track since they were never sold, however, they still represent a liability to the company.

There are also third-party applications that help companies manage their returns and exchange programs. The primary way they do this is by creating (and sometimes disabling) gift cards for customers to use in lieu of a cash refund or in advance of receiving the returned product. While great for customers and support teams, this can create a massive challenge for accounting teams.

How Should Gift Cards Be Recorded to Be in Compliance with GAAP?

Gift card sales increase the company’s gift card liability (credit) and increase cash (debit) on the balance sheet. The company has already collected the cash for the gift card and will need to provide a good or service in the future.

When the gift card is redeemed, the sale is captured as an increase to deferred revenue (credit) and the gift card liability is decreased (debit).

How Does Blue Onion Help to Make This Process Easier?

Blue Onion creates an audit trail for gift cards from point of sale through partial or full redemption, along with tracking refunds.

Our software also classifies gift cards so it’s easier to identify complimentary gift cards, as well as gift cards created through various third-party applications.

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While we are a team of former accountants, we are not in the business of providing professional services. The information presented is for informational purposes only and is not intended to be a substitute for professional accounting, tax, or legal advice. We recommend that you consult with a qualified accountant, tax advisor, or lawyer who is familiar with the specific needs and nuances of your business.