Q:

Does the purchase or redemption of a gift card constitute sales for a business?

A:

Quick Answer

Only the redemption of a gift card counts as a realized sale for a business. The Journal of Accountancy cites SEC regulations that define the transfer of merchandise as being the necessary condition for revenue to be recognized.

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Full Answer

When a gift card is purchased, the business has received payment for a potential future purchase, but the consumer decides when the transfer of merchandise occurs. For this reason, a business records the purchase of a gift card as deferred revenue. If some or all of a gift card is not redeemed, it may be recorded as actual revenue after a certain length of time.

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