One area where many of our clients get confused is how to manage and track gift certificates using QuickBooks. This is understandable, gift certificates are a liability that becomes income and tracking them can easily become confusing.
Let’s take a look at the full gift certificate process from start to finish using the example of Penny’s Pies.
Penny has been doing really great with her pie business and is seeing that more and more customers would like to share gift certificates with their friends. She went into her QuickBooks online and did the following setup.
- She added a bank account called Gift Certificate. (Though gift certificates are technically a liability account by making them a bank account it becomes easier to process and track them)
- She added a product called Gift Certificate that points to the newly created Gift Certificate bank account.
Let’s see how Penny sells her first gift certificate.
Penny’s good friend Polly the Paper monster came in and purchased a gift certificate for her friend who is hosting a large event and wants to buy lots of pie. Penny creates a sales receipt for the $300.00 gift certificate and uses her Gift Certificate product for this purchase.
If we take a peek now at Penny’s balance sheet we can see that her Gift Certificate bank balance is -$300.00. This is showing that she currently owes a customer $300.00 worth of pie.
The next month Polly the Paper Monster’s friend comes in and orders two dozen pies. Penny is going to be busy baking!
In this situation (and most situations where someone is redeeming a gift certificate) we can see that the total purchase is greater than the amount available on the gift certificate. This tells us Penny’s customer will be using more than one payment method, so we will be using an invoice and receiving payment against it.
First she will redeem the gift certificate. You can see that this is just like receiving any other payment the only difference is that Penny is using gift certificate as the payment method.
Next Penny receives the remaining balance due, the customer paid this with a credit card.
To complete this sale and make sure that the balance is correct in the gift certificate account Penny now deposits the gift certificate payment into the gift certificate bank account.
When we look at Penny’s balance sheet now we can see that the gift certificate bank account is now at zero. All of her outstanding gift certificates have been redeemed.
If you have any questions about processing gift certificates please leave a comment below.