Accounting for “gift card” sales
Photosbychrisygk
Member Posts: 2
I am fairly new to wave and running a small photography business. I want to be able to do a promo where clients get a discounted photoshoot if they prepay before a certain date and then they can book the shoot (service) at a later date. I need to know how to account for the “prepayment” from the customer.
1
Comments
Prepayments are shown as a liability. So the entry would be debit cash (received) credit liability "deferred revenue". Once you have completed the service, then debit deferred liability credit sales. This is an accrual concept so it may not be applicable for tax purposes. Depends on the method you use for tax. Most small businesses use the cash basis method i.e. recognize income when received and expenses when paid. Hope that helps.
Mike G, CPA
mgfinancial.net
Mike, so for cash basis, basically treat it as a sale when they prepay? Then provide the service later?
For cash basis accounting, yes. Cash received is income and recognize expenses when paid. Accrual accounting has a different standard for recognizing income and expenses. If I can provide tax assistance, I would appreciate the opportunity.
Mike G
www.mgfinancial.net