This Week Somebody Asked Me… How to create an invoice when a customer has redeemed a Promotional Gift Certificate they were given.
So I created a video! I show the walk through on Quickbooks Desktop, but there is useful info for whatever bookkeeping software you may be using, such as, is the GST/HST charged before or after the redemption? Is a promotional Gift Card or Gift Certificate (given away) the same as a Gift Card or Gift Certificate that was sold? Is it entered as an expense or as a “negative income,” and how do you do that? Great Questions deserve Great Answers!
Is a Promotional Gift Card or Gift Certificate the same as a sold Gift Card or Gift Certificate? No. When you sell a gift card, it is a future promise, a type of “Cash” that can only be spent at that establishment. So, you must record when a Gift Card is sold. No GST/HST is charged on this sale, as it is not a product or service. So, your Cash or Bank balance goes up with the sale, and your Gift Card Liability GL account also goes up. Then, when the product or service is rendered, a typical invoice is created and GST/HST charged on the applicable goods or service, and then the Gift Card is a form of payment to that sale… Accounts Receivable goes down, and the Gift Card Liability goes down. A Promotional Gift Certificate is DIFFERENT. It is treated like a “Discount” or a “Coupon.” No need to record this in the bookkeeping when handed out (but you can on a spreadsheet, just to keep tabs). Instead, you record the discount when the promotion is redeemed.
When it is redeemed, if it is a non-reimbursable coupon, you the vendor have the choice to enter it as a discount on the goods or service BEFORE tax, or AFTER tax. That is, it can reduce the sales amount, or it can reduce the balance of the invoice itself. This is noted on CRA’s General Information for GST/HST Registrants RC4022 here. It reads “(Non-Reimbursable coupons) are coupons that you, as the vendor, issue and accept, and for which no one reimburses you. They entitle the customer to a reduction in the price for a fixed dollar amount or a fixed percentage amount. As the issuer, you have the option to include the GST/HST in the value of the coupons, when the coupons are used to purchase taxable goods or services (other than zero-rated goods or services).”
When it is redeemed, you assign the amount to an Income Account that you can call “Promotions and Discounts”, or something similar. It may feel like a promotions or advertising expense. But, it is really a price reduction as opposed to an added cost to running the business. So we show the discount as a negative income, reducing the sales total.
Watch the video to see this in action on Quickbooks Desktop! If you have any questions or comments, feel free to drop me a line!