When the gift card is resolved the company receives revenue which is yet to be earned since the customer paid money but did not take any merchandise. As a result, the transaction creates a liability for the company in the form of gift cards outstanding. The transactions that will accompany the sale of the gift card are, therefore, the debit of the asset account Cash, in recognition of the cash received by Imel West and the crediting of a liability account Gift Card Outstanding in recognition of the liability created (Nikolai, Bazley, and Jones). This is a liability that will be settled once the gift card is redeemed in future.
The revenue from the gift card sold is only recognized when the customer or whoever he/she bought the gift card for, redeems the card. That is, revenue is recognized on the day the customer purchases merchandise from the company using the value of the gift card as payment. On this occasion, Imel West will debit the Gift Card Outstanding account indicating the settlement of the liability (Nikolai, Bazley, and Jones). The will also reduce the value of the gift card outstanding liability.
The gift cards may have expiration dates and the case of Imel West they expire at the end of 2 years from the time of purchase. Upon expiration, the company should reduce the value of the liability in the form of gift card outstanding (Nikolai, Bazley, and Jones). In many states, there are regulations requiring the company to remit the value of the unused gift cards the relevant government organs. The transaction, in this case, would be crediting cash and debiting Gift Card Outstanding account with corresponding amounts.
Works Cited
Nikolai, Loren A, John D Bazley, and Jefferson P Jones. Intermediate Accounting. Australia: South-Western/Cengage Learning, 2010. Print.
