Question

Suppose Cardullo’s gift cards expire after one year. A customer had a gift card for $100, of which he used $75 to purchase gourmet cheeses. At the end of the year, the card expires with $25 unredeemed. How do you think Cardullo’s should account for the unredeemed amount?

Answer 1

Answer:

Cardullo

Unredeemed Gift Card amount:

The $25 of the unredeemed gift card should be credited to Revenue Account and debited to the Deferred Revenue Account as expired gift card.

Explanation:

Gift cards establish some form of deferred revenue or gift card liability which the Cardullo must settle with the exchange of goods or services in the future.  However, if a customer is unable to redeem his gift card balance of $25 because of expiration, the revenue due on the expired portion, Cardullo must then credit the $25 to the Revenue account and debit the Deferred Revenue or Gift Card Liability account to close this unredeemed portion.