When you sell a gift card, you've been paid for something the customer hasn't received yet. Businesses commonly record the money as a liability (often called deferred or unearned revenue) and recognise it as revenue when the card is redeemed. Wrapped gives you the figures to support that: outstanding balances in the Liability reports and every sale, redemption, void and expiry in the Adjustments report. How you record gift cards, promotional value, expiry and tax depends on your accounting policies and local rules, so confirm the treatment with your accountant.
This article is general background to help you talk to your accountant. It isn't accounting, legal or tax advice.
The gift card lifecycle
| Event | What happens in Wrapped | A common accounting treatment |
|---|---|---|
| A customer buys a gift card | An Activation for the card's value. Liability rises. | Money received; a liability for the card's value. |
| A customer tops up a card | A Topup. Liability rises. | Same as a sale. |
| A customer spends the card | A Redemption. Liability falls. | The liability reduces and the sale is recognised as revenue. |
| The rest of the order is paid another way | Counted as upsell on Summary. | Ordinary sales revenue. |
| A card expires with value left | An Expiry adjustment. The value moves to Expired. | Depends on your policy and local law (see below). |
| A sale is voided or a balance is corrected | A Voided or ManualAdjustment. Liability falls. | Usually reverses the original entry. |
| You give away a promotional card or bonus credit | An Activation (promotional card) or Automation adjustment (bonus credit). Liability rises. | Depends on your policy (see below). |
Where gift card sales show in your sales channel
- Shopify: Wrapped's Digital Gift Card is a normal Shopify product, not one of Shopify's gift card products. Shopify records its sales as product sales, not as gift card liability. If you record gift cards as a liability, adjust for this in your books using Wrapped's figures. Redemptions at Shopify checkout are payments with Shopify gift cards, because Wrapped creates real Shopify gift cards. See How Wrapped works with Shopify gift cards.
- POS systems: Wrapped uses each POS's own gift cards, so the POS reports gift card sales and payments by its own rules. Check your POS's gift card reports.
- Web store: customers pay through your Stripe account. See Getting paid: Stripe, payouts and fees.
Wrapped's reports cover gift cards from every channel in one place, which is usually the simplest source for your liability figure.
Face value and price paid
Wrapped records a gift card's value, the amount the customer can spend. If you sold a $100 card for $85 with a discount, Wrapped's liability is $100 and the $15 discount is in your sales channel's order. See Revenue, voids and discounts in reports.
Month-end reconciliation
A simple monthly check, using the Liability and Adjustments reports. Run it at least 2 hours after month end so the last day is included; see How often reports update.
- Closing liability. Go to Reports › Liability › Point-in-time liability by sales channel. Set the end date to the last day of the month and note Liability on the ALL row.
- Opening liability. Change the end date to the last day of the previous month and note Liability on the ALL row.
- Movements. Go to Reports › Adjustments › Summary by sales channel. Set the range to the first and last day of the month and note the ALL row: Activation, Topup, Redemption, Expired, Other adjustment and Adjustments total.
- Check. Opening liability plus Adjustments total should come to about the closing liability. Adjustments total is the net of all the movements (redemptions and expiries are negative numbers).
- Explain the movements. Activations and top-ups are new gift card value; redemptions are gift card value spent; expired is value removed by expiry; other adjustment covers voids, manual corrections, refunds and bonus credit. Export Adjustments for the month to see each one. See Export a report to CSV.
If the check is out by more than a small amount, look for activity near the month boundaries, cards added or hidden from reporting during the month, and changes from the last couple of hours, then contact the Wrapped team with the figures.
Use Point-in-time liability for month-end balances. The current liability reports show what's outstanding today on cards activated in a range, so their figures keep changing as customers spend.
Dates are in your account's time zone, so make sure it matches the time zone your books use. See Account settings.
Promotional value
Promotional gift cards and bonus credit weren't paid for, but customers can spend them. Businesses treat this in different ways, for example as a marketing cost when it's issued or when it's redeemed. Wrapped includes promotional value in liability, and the Detailed current liability, Gift cards and Adjustments reports let you separate it. See Promotional gift cards and bonus credit in reports.
Expiry and breakage
- Some cards are never fully used. The unspent value is often called breakage.
- If your gift cards expire, Wrapped removes the remaining value on expiry with an Expiry adjustment, and the Liability reports show it under Expired. Whether and when gift cards can expire is regulated in many places. See Gift card expiry.
- If your gift cards don't expire, unspent balances stay in liability indefinitely.
- Wrapped doesn't estimate breakage. If your accountant uses an estimate, the Liability and Adjustments reports give the history to base it on.
Keep your records clean
- Void real sales that were reversed; don't delete them. Voiding keeps the card and its history. Deleting sets the balance to $0 in every connected sales channel and removes the card from reporting. Delete only test cards. See Void or delete a gift card.
- Hide from reporting only cards that were never real. Hiding can't be undone. See Hide a gift card from reporting.
- Correct balances in Wrapped, not directly in a sales channel, so every channel and your reports stay in step. See Adjust a gift card's balance.
- Check currencies. If you sell in more than one currency, check the Currency column in exports before adding amounts together.
Common questions
Is Wrapped's liability the figure for my balance sheet?
It's the outstanding value on your gift cards according to Wrapped, across all your channels. Your accountant decides how it's recorded.
Why do my Shopify sales reports show gift cards as product sales?
Because Wrapped's gift card product in Shopify is a normal product. This is how the integration works. Use Wrapped's Liability report for outstanding balances.
Should gift card sales include tax?
Tax treatment of gift cards varies by country and state. Ask your accountant.
Can Wrapped send figures to my accounting software?
There's no direct accounting software integration. Export the reports as CSV or Excel. See Export a report to CSV.
Do voided cards count as redeemed?
In the Liability reports, a voided card's value is counted under Redeemed. In the Adjustments report, the void is its own Voided adjustment, so you can separate it. See Revenue, voids and discounts in reports.