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Anna's Day Spa sells $25,000 worth of gift certificates in November and December.25% of the gift certificates are redeemed in December prior to the December 31 year end.
-The entry to record the sale of the gift certificates is:
A)Dr.Cash Cr.Gift card revenue
B)Dr.Gift Card Revenue Cr.Deferred gift card revenue
C)Dr.Prepaid Gift Cards Cr.Gift card revenue
D)Dr.Cash Cr.Deferred gift card revenue

Question

Quizplus · Accepted Answer

When gift certificates are sold, the revenue cannot be recognized until the gift certificates are redeemed or it is reasonably certain they will not be redeemed (breakage). Therefore, the initial entry is to debit Cash (increasing assets) and credit Deferred Gift Card Revenue (a liability account), reflecting the obligation to provide goods or services in the future.

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