How-to · Customers and sales
How to record a gift card sale
When you sell a gift card, record the cash and a liability, not a sale. When the card is redeemed, move that amount out of the liability and into sales, and charge sales tax or GST/HST on the goods bought at that point.
How-to guides / Gift card sale
The accounting behind it
Selling a gift card is a promise to supply goods or services later. Until the card is used, the money is owed to the cardholder, so it sits in a liability account such as Gift Cards Outstanding. This is the same idea as deferred revenue.
Sales tax and GST/HST are generally charged when the card is redeemed, on the full price of what is bought, not when the card is sold. The card is treated like money at redemption.
Cards that are never used are called breakage. When and whether you can take breakage into income depends on the accounting standard you follow and on unclaimed property and consumer rules where you sell.
| Account | Debit | Credit |
|---|---|---|
| Bank | Card value | |
| Gift Cards Outstanding (liability) | Card value |
| Account | Debit | Credit |
|---|---|---|
| Gift Cards Outstanding | Amount used | |
| Bank (any balance paid by the customer) | Balance paid | |
| Sales income | Price | |
| Sales tax payable | Tax |
Worked example: a $100 card used on a $90 meal
In December you sell a $100.00 gift card. In February the holder uses it for a $90.00 meal plus 5% tax ($4.50), so $94.50 comes off the card and $5.50 stays on it.
Sales of $90.00 and tax of $4.50 are recorded in February, not December. The liability drops to $5.50.
| Account | Debit | Credit |
|---|---|---|
| Checking | $100.00 | |
| Gift Cards Outstanding | $100.00 |
| Account | Debit | Credit |
|---|---|---|
| Gift Cards Outstanding | $94.50 | |
| Food Sales | $90.00 | |
| Sales Tax Payable | $4.50 |
Common mistakes
- Recording gift card sales as income in December, which overstates holiday sales and understates the rest of the year.
- Charging sales tax when the card is sold, then again when it is redeemed.
- Not tracking card numbers and balances, so you can't tell what is still owed.
- Taking unused balances into income without checking unclaimed property and consumer protection rules.
In the US and in Canada
United States
Under the federal Credit CARD Act rules (Regulation E, 12 CFR 1005.20), the funds on a store gift card can't expire within five years of when the card was issued or last loaded. Many states have stricter rules and unclaimed property laws. States generally tax the sale at redemption, not when the card is sold: Minnesota and California say so in their guidance.
Canada
Under section 181.2 of the Excise Tax Act, selling a gift certificate is not a supply, so no GST/HST is charged then; tax applies to what is bought when it is redeemed. Provinces set the consumer rules: in Ontario, most retail gift cards can't have an expiry date (with exceptions such as cards for one specific service).
In AcboBooks
Selling the card uses Make Deposit, which accepts a liability account. Redeeming it is a journal entry.
AcboBooks 0.2.1 has no separate screen for this, so it is done with a journal entry.
- Create the liability account. In Company → Chart of Accounts click + New Account, choose Account type Other Current Liability and name it Gift Cards Outstanding.
- Record the sale of the card. Go to Banking → Make Deposit. Choose Deposit to, the Date, and on a line pick From account Gift Cards Outstanding with the card value. Click Save Deposit.
- Record the redemption. Go to Activities → Make Journal Entry. Debit Gift Cards Outstanding for the amount used; credit your sales income account for the price and your sales tax payable account for the tax. Click Save & Post.
- Inventory items. If the card paid for stock items, also reduce the stock in Activities → Adjust Inventory, with Cost of Goods Sold as the Adjustment account, so the cost is recorded.
Keep a simple list of card numbers and remaining balances outside the books; the liability account total should match it.
Menu names are from AcboBooks 0.2.1. Not using it yet? Try it free for 15 days, with the sample company to practise on.
Questions
Is a gift card sale revenue?
Not when you sell it. It is a liability until the card is redeemed; the sale is recorded when the customer uses the card.
When do I charge sales tax on a gift card?
At redemption, on the price of the goods or services bought. In Canada, section 181.2 of the Excise Tax Act says the gift certificate sale itself is not a supply.
Can gift cards expire?
In the US, federal rules say the funds can't expire within five years of issue or last load; states can be stricter. In Ontario, most retail gift cards can't expire at all. Check your province or state.
Related how-to guides
- How to record deferred revenue
- How to record cash sales from a till
- How to record a security deposit received
Terms used here
- Customer deposits and retainers
- PST, QST and RST guide
- US sales tax calculator
- Accounting software for restaurants
Sources
- CFPB: Regulation E, 12 CFR 1005.20 (gift cards)
- Excise Tax Act, section 181.2 (gift certificates)
- CRA: gift certificates (GST/HST)
- Ontario: buying or using gift cards
- Minnesota Revenue: coupons and other discounts (gift cards)
Updated October 25, 2026. General bookkeeping information, not tax, legal or accounting advice. Rules differ by state and province and change over time; check with the IRS, the CRA or your accountant for your own situation.
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