Fraud Reimbursem*nt
A thief could obtain access to the identification codes for individual gift cards that are on display in retail stores, wait for someone to buy the cards, and then use the codes to buy goods. When this happens, the issuing entity should reimburse the defrauded customers, which should be tracked by the accounting staff.
The Delay in Sales Recognition
Though it is not an accounting transaction, one should also be aware of the delay in recognizing sales caused by gift cards. Card recipients may not use them for months, so the initial "sale" of the card only results in the recordation of a liability, which is eventually transformed into a sale when the card is used by the recipient.
Advantages of Gift Cards
Gift cards are a concept that has been in use for many years, first appearing as employer-provided scrip that employees could use to acquire goods in the company store. The current interpretation of the gift card has since been expanded to include all consumers, not just employees. Gift cards are a boon to the companies selling the cards, for the following reasons:
Source of cash. The recipients of gift cards do not necessarily use them. Depending on the study, it appears that between 10% and 20% of all gift cards are not used.
Upspending. Many card recipients spend not only the amount on the card, but a great deal more, which is known as upspending.
Returned goods. The amount of goods returned to the company decline from what would be experienced with a gift purchase, since the card recipient knows exactly what he or she wants to buy.
