We offer gift cards that have an expiration date.
I record the income in a general journal entry as item: "gift card" under "Other current liability."
At the end of the calendar year, how would you recommend recording the fact that the liability has been essentially forgiven, because the gift card is expired and we no longer owe the customer anything?
Thank you!
Because you treated the gift cards not as income but as "borrowed" money at the time of purchase, and would exchange the liability for income against purchase of inventory or service, you must also treat the expiration as you would redemption only there will be no COGS against the face value of the gift card.
Thus for any expired gift cards you can create a journal entry that debits the gift card liability account and credits a general income account.
Alternately if you had treated the sale of a gift card as 100% pure income when sold, you would be exchanging product for product when redeemed (no income at redemption) and would treat the expiration as contra-income or expense.
The expiration of a sold gift card treated as a current liability is similar to handling a non-refundable security deposit where the liability is converted to income (or used against open balance and liquidated)
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