Turning Gift Cards into Revenue

Those of you interested in marketing know that gift cards are among the hottest tools in merchandising today. Customers purchase gift cards and give them to someone for later use. In a recent year gift-card sales topped $95 billion.

Although these programs are popular with marketing executives, they create accounting questions. Should revenue be recorded at the time the gift card is sold, or when it is used by the customer? How should expired gift cards be accounted for? In its 2004 balance sheer Best Buy reported unearned revenue related to gift cards of $300 million.

The Basics Of Adjusting Entries

In order for revenues and expenses to reported in the correct period, companies make adjusting entries at the end of the accounting period. Adjusting entries ensure that the revenue recognition and matching principles are followed. Adjusting entries make it possible to report corect amounts on the balance sheet and on the income statement.
The trial balance-the first summarization of the transaction data-may not contain up-to-date and complete data. This is true for several reason :