Hello Raphael
Yes, I agree with you; since there are no goods or services rendered to the customer yet then gift cards do not qualify as revenue. Upon redemption of the gift card is when the company should record earnings from gift cards as revenue. It behooves financial professionals to adhere to the professional demands of the career and recording gift cards as revenue is unethical and misleading. It is bold of you to decline the request from GM to record gift cards in the revenue category. This also exhibits your integrity and commitment to accuracy.
Hello Peter
You exhibit the highest level of professionalism by taking time to educate the GM on gift cards and why they do not qualify as revenue yet. This approach prevents any misunderstanding and conflict between you and the GM. Yes, reporting gift cards as revenue compromises the company’s financial reports and goes against the ethics of financial accounting. Such an action can risk your career and reputation; it is prudent of you to play by the code of conduct and ethics of financial accounting. Yes, gift card revenue is best for the company recorded in unearned revenue or deferred revenue until the exchange of goods and services occurs.
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Hello Christina
I believe that gift cards should not be recorded in sales revenue but as a liability, since the company has a responsibility to provide the goods and services stated in the card at a later date. Yes, you are spot on regarding revenue recognition principle; that revenues should be reported and recognized when earned and realized but not when cash has been received. Therefore, recognizing gift cards as revenue goes against the aforementioned principle, which is unethical. It is thoughtful of you to decline your GM’s request based on your commitment to the accounting principles.
References
Kimmel, P., Kieso, D., & Weygandt, J. (2013). Financial Accounting (9 ed.). New Jersey: John Wiley & Sons.
Lau, R. (2019). How to Properly Recognize Gift Card Revenue. Insights, Insights . Retrieved from leapfin.com/blog/how-to-properly-recognize-gift-card-revenue/.
Lehman, M. W., Gilbertson, C. B., & Harmon-Gentene, D. (2014). Fundamentals of Accouting: Course 1. United States of America: Cengage Learning.
