How to Account for Gift Certificates

Hey studio owners, let’s talk about gift certificates sales. I have seen many people account for gift certificate sales in a way that is harder than it needs to be. So let’s dive in.

Not refundable for cash

First, when you sell a gift certificate in 99% of the cases I see, those are not refundable for cash. In the eyes of the IRS, if you are a cash-based taxpayer, which most of you are, then that is income at the moment you collect it as a gift certificate sale.

So it doesn’t need to be used in order for it to be income to you. The rule of thumb is if those funds are not refundable, they’re income at the time you receive them.

So there isn’t a need to set up in your financial accounting and track how much gift certificate sales, were used and outstanding. That’s just an overburdening of your accounting system, and it’s a lot of work for not much.

Track all of your gift certificates

What you do wanna do though in your point of sales system is track all of your outstanding gift certificates so that if somebody comes in and wants to use them, obviously you can manage that within your point of sale and use that as a payment method.

That will just mean that less cash is coming in the door that day when a gift certificate is used, so there will be less income on your financials that day because you didn’t collect the cash then.

So make this easy on yourself, just track your gift certificate sales through your point of sales system or even through a spreadsheet if you like to show how much you sold, what the value of that gift certificate remaining is, and when it’s used.

Make it easy on yourself. Don’t worry about it from the financial side for taxes.

For additional read: Why Your Paint Your Own Pottery Studio Needs to Have a Gift Card System in Place

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Donna Bordeaux, CPA with PYOPAccounting.com

Creativity and CPAs don’t generally go together. Most people think of CPAs as nerdy accountants who can’t talk with people. Well, it’s time to break that stereotype. Lively, friendly, and knowledgeable can be a part of your relationship with your CPA, as demonstrated by Donna and Chad Bordeaux. They have over 50 years of combined experience as entrepreneurial CPAs. They’ve owned businesses and helped business owners exceed their wildest dreams. They have been able to help businesses earn many times more profit than the average business in the same industry and are passionate about helping industries that help families build great memories.