When we receive gift certificate for $1,000, ......

[NPH]

Our accountants record the transactions:

DR Unearned Revenue $1,000
CR Misc Revenue $1,000

When we purchase the supplies for $985

DR Supplies Expenses $985
CR Unearned Revenue $985

Is this correct?

[Maribeth]

Well . . . . if my logic follows your factual circumstance, this is how I would book the entries:

Sale of the gift certificate
DR Cash
CR Unearned revenue

Receipt of the gift certificate through a sales transaction
DR Unearned revenue
CR Sales

Payment of the widget sold
DR Cost of goods sold
CR Cash

If your company received the gift certificate to be used by your company, then I would have to know WHO gave you the gift certificate and for what purpose they gave you the gift certificate.

Does this help?

Maribeth

[NPH]

My company received the gift certificate from Home Depot in the amount of $1,000 to be used by my company

How can we record it?

[Maribeth]

Why did Home Depot give you the gift certificate? Was it in payment of an outstanding invoice, ie, they are your customer? Was it an incentive because your purchases from them went over a certain limit, ie, you are their customer? Was it just a marketing incentive from them to get you in the door to purchase their goods?
Maribeth

[BOB W]

It looks like Home Depot is giving a discount that should be either be included in Sales or should go to material expense as a credit. But to treat it as non-taxable income and then deduct it as an expense when it is used seems to be double dipping. What say you?????

[NPH]

We are long time customer of the Home Depot. It is incentive.

[BOB W]

We are long time customer of the Home Depot. It is incentive.

So, is the inventive TAX FREE??????

[Bird Legs]

Incentive Gift Certificate

It sounds like you either have a reduction of cost of whatever you purchased by the $1,000. or you have income of a $1,000., recognization of the certificate, and the full cost of whatever you purchased.

[Maribeth]

I agree. You either have no basis in the supplies that you purchased or you have income and full basis of the supplies you purchased.

I would record the entry like this:

Purchased 1,200 of supplies from Home Depot. Used $1000 coupon and $200 check.

DR Supplies 200
CR Cash 200

Maribeth