From the course: Finance and Accounting Tips

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Accounting for gift cards

Accounting for gift cards

From the course: Finance and Accounting Tips

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Accounting for gift cards

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- Have you noticed that around the holiday season companies make a big push to sell gift cards? They're wonderful as stocking stuffers. They're easy to wrap. The recipient can use them when they want. What's not to like about a gift card? Well, companies like them for another reason. We lose them or we don't use them. When a company sells a gift card, they receive the cash and they record a liability. By the way, this is about the best kind of liability you can have. You already have the cash to do with what you will. The technical term for this kind of liability is called unearned revenue. You've received the cash, you just haven't provided the service yet. Microsoft, for example, has a big unearned revenue liability. They've received the cash, and have promised to provide services and software upgrades in the future. Delta Air Lines is another company with a big unearned revenue liability. They have received cash, and have agreed to fly individuals from here to there in the future…

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