Georgia's Salon
The salon sells $50,000 of gift cards in May Year 1. These gift cards may be used anytime before their expiration on May 31, Year 2.
-Refer to the figure Georgia's Salon.As of May 31,Year 2,all but $1,500 of the gift cards had been redeemed for salon services.What is the impact on the accounting equation of recording the expired gift cards?

Question

Quizplus · Accepted Answer

When the gift cards expire, the liability (the obligation to provide services) decreases because the salon no longer owes services to the holders of the expired gift cards. This decrease in liability is accompanied by an increase in shareholders' equity, as the obligation is removed without the need for an outlay of resources, effectively increasing the net assets of the company.

Georgia's Salon The Salon Sells $50,000 of Gift Cards in May Year