West Corporation issued a $1,000 gift certificate.What journal entry will West Corporation record?

Question

Quizplus · Accepted Answer

When a gift certificate is issued, West Corporation receives cash (an asset) and incurs an obligation to provide goods or services in the future. This obligation is recorded as unearned revenue, a liability account. Therefore, the journal entry should be a debit to Cash and a credit to Unearned Revenue. Option A is incorrect because it records the transaction as a sale, which is not appropriate for a gift certificate. Option C is the opposite of what it should be - it incorrectly records the transaction as a liability being paid off with cash, when in fact it is a liability being created. Option D is incorrect because it records the gift certificate as an account receivable, which is not accurate as no payment is expected in the future.

West Corporation Issued a $1,000 Gift Certificate