Think of Gift Certificates as cash WHEN they are redeemed - before they are redeemed then it is treated similar to a prepaid deposit. There is no revenue until the GC is redeemed.

I am going to assume you are numbering the GC to prevent fraudulent use and that there is an expiry date on the GCs.

When giving away GCs then post as a JE giving the name of outfit GC is donated to, GC number, and date given to group. You would be crediting a liability account called something like 2300 Gift Certificates and debiting an expense account called Donation.

When the GC is redeemed you would enter the items purchased as a sales invoice and payment would be using the 2300 Gift Certificate acct nbr as the 'bank'.

If you were to 'sell' a GC then entry would be to CR 2300 Gift Certificate and DR cash/chquing account.

When the GC is redeemed you would follow the same procedure as above.

At year-end you have a look at the 2300 Gift Cert account and decide whether any needs to be written off due to being past expiry date. In your case the JE for write-offs would be to DR 2300 and CR Donation expense.

Hope this helps!

Hi tsherr,

If any suggestions provided in this thread are able to help you resolving your issue, would you please click the 'Yes' button to the question - 'Did this answer the question?'  The thread will be marked as answered, which will benefit other users who have the same issue.  Thanks a lot.

A note regarding expiration of gift certificates: in some jurisdictions, some gift certificates are not permitted to expire. There are specific regulations about it. A non-specific gift certificate for just a dollar amount never expires in Canada and no tax or revenue is recorded until the certificate is redeemed for products/services. Gift certificates for specific items (a massage, a tire, etc.) may expire but it must be clearly stated on the certificate. Check the CRA rules for clarification on your particular situation.

tsherr:

Also note, a gift certificate given to a charity does not qualify for a charitable donation receipt so it would follow that you cannot claim the expense as a donation. It has been suggested that no entry is required in the financial records until the certificate is redeemed at which time the Donation account can be used to offset the revenue account recording the sale. Keep a manual record of the certificates for tracking purposes only.

Alwyn, that's interesting. I just read up based on your response and only the HOLDER not the ISSUER can receive a donation receipt. See the CRA bulletin here: www.cra-arc.gc.ca/.../gftcrt-eng.html  Now, that leaves how does the issuer record this? I would think that they would have to credit gift sold and debit a new b/s account: deferred gift certificates issued. Or something like that. Otherwise they have no way to track it in their records. When it is redeemed, credit deferred and debit expense. Hmm.. something for me to think about.

I said

""When giving away GCs then post as a JE giving the name of outfit GC is donated to, GC number, and date given to group. You would be crediting a liability account called something like 2300 Gift Certificates and debiting an expense account called Donation.""

However if the group is not a registered charity then you could use Adv/Promo as the expense account. Donation expense account  should only be used if you are able to get an official charity receipt from the purchaser.