Brief Accounting Lesson
Mr. Hobbs, who is one of my favorite bloggers, gets something wrong and it is a rarity. Here, he states: The money is in the bank. They’re just waiting for you to pick out the merchandise. The statement he makes is correct. But the reporter is correct as well. Cash receipts and income are separate animals. Just because you have cash doesn’t mean you have income.
Yes, the money is in the bank but there is no revenue recorded from a gift card sale. In a normal sale, you record the receipt of cash and revenue. In a gift card sale, you record cash and a liability to give someone merchandise in the future (commonly called deferred revenue). That is if the company is following generally accepted accounting principles. So, the sale of gift cards actually only affect the balance sheet and have no impact on income until such time as the person redeems their gift card.
