Eric&Lisa wrote:lots2seeinmyrv wrote:
Eric&Lisa….
"Pretty sure that is not how Gift Certificates work from an accounting standpoint. The company needs to hold those funds 'on the books' and cannot spend them on expenses until they are redeemed. If I buy a $20 gift certificate, the accountant credits $20 to the bank account. But in issuing the GC, they also have to enter a debit for "We owe Eric $20 worth of cheeseburgers". Buying GC's does not go in a restaurant's nightly income on their balance sheet."
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The gift certificates are bought in cash or credit card. That is revenue on the books when they are sold. They do not "hold" this revenue account until the Gift Certificate is redeemed.
So are you saying if I bought a $50 gift certificate and I never redeemed it or it expired. That is not $50 bucks in the revenue? Of course it is. What do they do with the $50 gift certificate that was never redeemed? Throw the cash in the trash?
Gift Certificates are not returnable. It is money in the bank. When it is redeemed it is debited from previous accrued income against the net revenue for the month.
It is revenue when purchased.
If you sell $5,000 in cheeseburges and redeem $1,000 in cheesburger gift certificates then you have a NET of $4,000 income for that financial period (month).
Well, golly. Many years ago in a career far away I was a restaurant general manager. I never got to count my Gift Certificates sold for my nightly sales. Let's think this through...
Tonight I sell you a $20 gift certificate. You give me a $20 bill. I give you a certificate (functionally currency) for $20 in product redeemable at my establishment. Tomorrow you come in and redeem it for $20 in cheeseburgers.
When do I get to count the "sale"?? Is it the day I exchanged $20 for the certificate? Or the day I exchanged the certificate for cheeseburgers? I don't get to count both as I didn't really get the money in twice. Keep in mind, I only really have expenses on the 2nd transaction where I have to give up meat, buns, and special sauce.
I guess we can keep debating account practices and continue to disagree. Or we can seek an outside reference.... LMGTFY
-Eric
mich800 wrote:Eric&Lisa wrote:lots2seeinmyrv wrote:
Someone posted on FB to support your local restaurants by buying Gift Certificates, to keep revenue going, that you can use later.
Great idea.
Pretty sure that is not how Gift Certificates work from an accounting standpoint. The company needs to hold those funds 'on the books' and cannot spend them on expenses until they are redeemed. If I buy a $20 gift certificate, the accountant credits $20 to the bank account. But in issuing the GC, they also have to enter a debit for "We owe Eric $20 worth of cheeseburgers". Buying GC's does not go in a restaurant's nightly income on their balance sheet.
The only way this helps is you are promising to do business with them when they re-open. And if they fold and don't re-open, guess where Gift Certificates are in the 'who we owe money to' bankruptcy list.
My guess...
Some restaurants which are already hurting will be impacted. COVID is just putting them over the edge, it really could have been anything else. But I'll bet a lot of them innovate with special take-out menus, delivery, etc. I suspect some of them may take the opportunity to do some deferred maintenance - fresh paint, clean carpets, etc. Stuff that would normally disrupt operations and close all/some of the business may get done.
As far as I can tell, this is just an order to close restaurants/bars to being open for dining operations. There is nothing telling restaurant owners they can't have their wait-staff show up at work and do maintenance/deep cleaning (ie: earning a paycheck). If the kitchen staff is busy filling take-out orders, then things may be a little lean for everyone involved, but it is not a complete lights-out. This is not a situation where the government is closing all restaurants and ordering the employees to be permanently laid off.
-Eric
Cash flow and revenue recognition are two different things. Yes, the company can use the funds. Yes, it will not be recognized as revenue on the P&L until it is redeemed. So purchasing gift cards does help cash flow. The risk as a purchaser is will the company be in business in the future to redeem.
Eric&Lisa wrote:lots2seeinmyrv wrote:
Someone posted on FB to support your local restaurants by buying Gift Certificates, to keep revenue going, that you can use later.
Great idea.
Pretty sure that is not how Gift Certificates work from an accounting standpoint. The company needs to hold those funds 'on the books' and cannot spend them on expenses until they are redeemed. If I buy a $20 gift certificate, the accountant credits $20 to the bank account. But in issuing the GC, they also have to enter a debit for "We owe Eric $20 worth of cheeseburgers". Buying GC's does not go in a restaurant's nightly income on their balance sheet.
The only way this helps is you are promising to do business with them when they re-open. And if they fold and don't re-open, guess where Gift Certificates are in the 'who we owe money to' bankruptcy list.
My guess...
Some restaurants which are already hurting will be impacted. COVID is just putting them over the edge, it really could have been anything else. But I'll bet a lot of them innovate with special take-out menus, delivery, etc. I suspect some of them may take the opportunity to do some deferred maintenance - fresh paint, clean carpets, etc. Stuff that would normally disrupt operations and close all/some of the business may get done.
As far as I can tell, this is just an order to close restaurants/bars to being open for dining operations. There is nothing telling restaurant owners they can't have their wait-staff show up at work and do maintenance/deep cleaning (ie: earning a paycheck). If the kitchen staff is busy filling take-out orders, then things may be a little lean for everyone involved, but it is not a complete lights-out. This is not a situation where the government is closing all restaurants and ordering the employees to be permanently laid off.
-Eric
lots2seeinmyrv wrote:
...They should be using all opportunities and marketing ideas they can. This Virus is not a one-size-fits-all solution to all businesses and the many problems this is causing the entire country....
lots2seeinmyrv wrote:
Eric&Lisa….
"Pretty sure that is not how Gift Certificates work from an accounting standpoint. The company needs to hold those funds 'on the books' and cannot spend them on expenses until they are redeemed. If I buy a $20 gift certificate, the accountant credits $20 to the bank account. But in issuing the GC, they also have to enter a debit for "We owe Eric $20 worth of cheeseburgers". Buying GC's does not go in a restaurant's nightly income on their balance sheet."
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The gift certificates are bought in cash or credit card. That is revenue on the books when they are sold. They do not "hold" this revenue account until the Gift Certificate is redeemed.
So are you saying if I bought a $50 gift certificate and I never redeemed it or it expired. That is not $50 bucks in the revenue? Of course it is. What do they do with the $50 gift certificate that was never redeemed? Throw the cash in the trash?
Gift Certificates are not returnable. It is money in the bank. When it is redeemed it is debited from previous accrued income against the net revenue for the month.
It is revenue when purchased.
If you sell $5,000 in cheeseburges and redeem $1,000 in cheesburger gift certificates then you have a NET of $4,000 income for that financial period (month).
Eric&Lisa wrote:monkey44 wrote:
Kids need social interaction as well, and don't forget sports and Phys ED....................
Yup. Not trying to debate any of those points. Just saying COVID is providing a unique case-study opportunity on a wide scale. The results of which could break either way.
-Eric
