But don't you need to track the gift as a liability? by: Steve
When your services business donates a gift certificate, you might need to post a credit against a liability account.
I think it depends on the nature of your business.
Consider a school that donates a gift certificate for a "free lesson". Suppose the teacher is paid a fixed $20 per lesson.
To account for the future obligation to pay the teacher who provides the lesson, I think you need to post a $20 credit (increase) to a "Lessons Payable" or "Services Payable" liability account.
If the gift certificate expires without being used, then you can debit the liability.
Suppose the school didn't track gift certificates this way--i.e., suppose it waited to record the gift certificate until the free lesson was taken. Then, the school could give out hundreds of these certificates, and the accountant would have no idea of the actual outstanding liabilities.
So, in the school's case, it is important, it seems to me, to consider the gift certificate a liability at the time of issuance. The key reason is that the school's cost of providing service (paying the teacher $20) is significant.
On the other hand, if the cost of providing service in your business is low, you might get by without going to the liability complexity.
