In January,2018,Summit Co.sells a gift card for $50 and receives cash.In February,2018,the customer comes back and spends $20 of their gift card on a water bottle.What would be the appropriate journal entry for the purchase of the water bottle?

Question

Quizplus · Accepted Answer

When Summit Co. sold the gift card, they received $50 in cash but had not yet earned the revenue. Therefore, they should record the transaction as a debit to Deferred Revenue and a credit to Sales Revenue. 
When the customer comes back and spends $20 of the gift card, Summit Co. has now earned $20 of the revenue previously deferred. Therefore, they should record the transaction as a debit to Deferred Revenue for $20 and a credit to Sales Revenue for $20. Option B best represents this transaction.