Why are my gift card sales not included in my total sales?

[bwells75]

The title of this post has been edited from the original: Gift Card Sales not in Gross

Does anyone know why square gift card sales are not represented in the gross daily sales?

Thanks,

Brandon

[ryanwanner]

The sales of a Gift Card wouldn't count as a sale on the day the gift card was issued. When the gift card comes back into your store and the customer makes a purchase is when the gross sales get tallied.

To put it another way,

When you issue a gift card, you're essentially issuing a way for future purchases to be made that has been prepaid. Gift card sales would show as a liability on your Profit and Loss statements--you "owe" the gift card buyer/recipient the dollar amount on the card. No sales were officially "made" with the purchase of a card. The money for the purchase of the card is given to you at this point because this is when the transaction occurs.

When the card comes back to your store and purchases are made, the purchases count as a sale and your outstanding Gift Card liability is reduced accordingly. This is when your gross sales are recorded.

In best case scenarios, you would take that dollar amount of the gift card sale and put it into a separate bank account. Technically, that money isn't yours until the recipient of the card comes back in and purchases something. When the gift card is used for a purchase, that dollar amount could be transferred from the gift card account to your main account for you to use as you need.

Also, If the unthinkable were to occur and you had to close, you could be on the hook to return the outstanding balances on the gift cards. Having the funds in a separate account would keep you from facing any type of lawsuits.

Of course, if any small business is running on that best case scenario, I'd love to know how they do it....... 😉

[Thosejonesgirls]

But for tax/accounting purposes, you've sold and collected the money for those gift cards therefore it's been deposited in your accounts and count towards you annual sales $. That doesn't change whether they're spent the card or not.

[GlassJudy]

That's what many people think, but the way @ryanwanner explained it is exactly correct.  The sale of the GC results in a liability to your business, not a sale (income) that has been made.  When the liability (GC) is cashed in (redeemed for product/service) is when the actual income is generated.