What journal entries to use to document a free gift card that was given as the result of a cash purchase. Assuming a liability is being created after the initial transaction. Also, what FASB pronouncements are in existance that would back up your answer? Any help would be greatly appreciated.
Sunday 5th February 2012
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What accounting procedures to use with a free gift card?
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Tags: forever, gift, novel, Roaches, Valentine's
The $10 is a contingent liability. Your journal entry would to credit the contingent liability account and debit the contingent loss (or expense) account.
You can only do this if it is probable that the gift cards will be used and if you can reasonably estimate how many will be redeemed.
See FAS 5.
Hope that helps. :0)