Gift cards (also known as gift vouchers or gift certificates) can be purchased by customers as pre-paid money cards to be used as a method of payment at a later date. People often use these types of vouchers as gifts to others.
When a gift voucher is sold and redeemed it needs to be accounted for in a particular way to ensure that revenue and tax is recognized at the appropriate time.
Selling gift cards
You can create dedicated products for each value of gift card that you sell.
If you sell these cards online, make sure the SKUs you use match the gift card codes on the sales channel. When an order containing a gift card downloads, the correct gift card product will then be added to the order in Brightpearl.
According to accounting standards, when a gift card is sold, it should be recorded as a current liability; the revenue should only be recognized once the gift card is redeemed.
To ensure this happens, your gift card products should be assigned a liability account code in place of the sales revenue account code. When gift cards are added to sales orders, this liability account code is then automatically assigned to the order row to ensure that the correct accounting is created on invoicing the order.
How to create a gift card SKU
- If one doesn't already exist, create a current liability account code at Accounting > Chart of accounts specifically for recording the sale of gift cards. By default, the gift card code is 2080 (EU accounts) or 2280 (US accounts).
- At Settings > Company > Accounting: Accounts (nominal codes) choose this code as the "Gift cards" code:
- Create product records to represent each different value gift card for sale. In the prices tab of the product record, for the Sales code, choose the "Gift cards" code you just created:
Note: For UK merchants selling multi-purpose vouchers, VAT is only payable when the voucher is redeemed. As such the SKU should be set to a zero rate tax code.
Gift card / voucher redemption
When a customer later buys goods or services and chooses to use the gift card as payment, there are two ways the gift card redemption can be recorded in Brightpearl:
- Taken as a payment using a gift card payment method
- Entered as a negative order row
Either way, once goods have been purchased with the voucher, the revenue should be recognized and the gift card liability reduced.
Gift card redemption via a payment method
First, a payment method must be created in your Brightpearl settings:
- Create the gift card payment method at Settings > Company > Payment methods.
- Choose to 'Add a new payment method'. Give it an appropriate name and ensure the bank account selected is your gift card liability account (the same code used for selling gift cards).
This payment method can then be used when taking payments against sales orders in the same way as other payment methods.
Gift card redemption as a negative order row:
- The sales order should be created as normal, adding inventory items and service items as required
- Then add an order row for the gift card redemption. This can be either a free text row, or you can use a gift card SKU.
- Ensure the row is using the correct account code, i.e. the gift card liability account (2080 in our example).
- Ensure the row has the correct tax code selected.
Note: If tax is payable on gift card redemption, which is usually the case is both the UK and US, then this row should not be taxable. Tax will be accounted for against the products that are being sold.
- Enter the amount being paid by gift card as a negative amount. This will update the order total to show the remaining amount due.
Note: It is possible to either underpay or overpay by gift card! Ensure the amount is correct.
- Take any additional cash payments using the "Take payment" option as normal, or, if funds are due to the customer, use this option to issue a refund
- Invoice the order.
Here, an item of £48 has been fully paid with a gift card of the same value (notice that the order total is zero):
When the order is invoiced, the negative amount positing to the gift card liability account will balance against the original credit created when the voucher was sold. The revenue for the actual product sold will be recognized (against code 4000 in our example).
Expired gift cards
When gift cards have been sold and not redeemed within the valid date range, the revenue may be recognized.
To recognize revenue for expired gift cards, enter a manual accounting journal to debit the value from the gift card liability code and credit it to the gift card sales code.
Alternatively, a separate account sales type account code can be used specifically for "Expired gift cards".
The figure on the "Gift card" liability account code should be the net of the value with the gift card management company.