The short answer
When you sell a gift card, record the money as a gift card liability: you owe the holder a meal. When the card is redeemed, move that amount from the liability to sales. Sales tax usually applies at redemption, when food is actually sold, not when the card is bought.
Why a gift card isn't a sale yet
December gift card sales can be one of the busiest weeks of the year for cash, and none of it is revenue. Booked as sales, December looks like a record month and January through March look weak, because guests are eating meals you already counted. Your food cost and labour percentages are wrong in both directions.
The entries, in plain terms
- Card sold for $100: cash goes up $100, gift card liability goes up $100. No sales.
- Guest spends $60 of it: gift card liability goes down $60, sales go up $60. Tax on the meal is charged now.
- Remaining $40: stays as a liability until it's used, or until a breakage rule applies.
Check the liability against your POS or gift card provider's outstanding-balance report every month. If they don't match, something is being recorded twice or not at all.
Cards that are never redeemed
Some cards are lost, forgotten or only partly used. The unredeemed amount is called breakage. How you handle it depends on two things:
- Accounting rules generally let you recognize expected breakage as revenue gradually, in line with how cards are actually redeemed, once you have enough history to estimate it.
- Local laws may limit expiry dates or fees, or require unclaimed balances to be turned over to the government. These rules differ by state and province, so check each place you sell cards.
Watch out for
- Promotional cards, like "buy $100, get a $20 bonus card". The bonus isn't a sale and is usually treated as a discount when it's used.
- Cards used across locations. Sold at one location and redeemed at another means one location holds the cash and the other serves the meal. Settle it between them.
- Third-party gift cards sold through other companies, often at a discount or with a fee.
How Savoury handles it
Gift card sales are held as a liability, redemptions are recorded as sales when they happen, and the balance is reconciled to your gift card reports every period.
Restaurant bookkeeping