The Challenge of Accounting For Gift Cards

The Journal of Accountancy has an interesting story about the challenge of accounting for gift cards. Since no merchandise changes hands, cash from gift card sales should not be recorded as revenue under normal retail accounting. But chalking it up as a deferred revenue liability only presents a partially correct picture. The author of the article analyzed the 10-K statements of retailers to determine how companies were accounting for gift cards. What he found is that it varies quite a bit… something to keep in mind before you invest those retail stocks.