Unwrapping Rules For Gift Card Accounting Under GAAP (2026 Update)

 Holiday gift card sales are about to peak. Here's how restaurants and retailers can record sales, promotions, and breakage correctly under ASC 606.  

Gift cards are one of the easiest sales of the season and one of the trickiest to account for. Every card sold puts cash in the register, but it also creates a promise your business still must keep. For restaurant owners and operators, retailers and franchisors running system-wide programs, getting the accounting right protects your year-end numbers, your audit, and your guests' trust.

Below, we walk through common gift card scenarios, how to handle promotional discounts, and what to keep in mind for breakage, gift card laws, and tax timing.

How Are Gift Cards Accounted For Under GAAP?

Under U.S. generally accepted accounting principles (GAAP), a gift card sale isn't revenue yet. The Financial Accounting Standards Board (FASB) revenue standard, Accounting Standards Codification (ASC) 606, treats that cash as payment in advance for goods or services you haven't delivered. You record a liability at the point of sale and recognize revenue when the card is redeemed and the performance obligation is satisfied.

Promotions add a wrinkle. When you sell a $25 gift card for $20, the $5 incentive reduces the transaction price. A common approach is to record it as a contra-liability against the gift card liability, then move it to sales discounts as the card is redeemed. Reviewing each promotion's terms before launch helps make sure your gift card system tracks it correctly.

What Do Gift Card Journal Entries Look Like?

The three scenarios below cover the situations we see most often. Each one keeps cash, the liability, and revenue in step, so your balance sheet always shows what you still owe guests.

Gift Card Scenarios To Consider

Scenario 1 – No Promotion

 The traditional option is a gift card sale at the restaurant. Restaurant A sells a gift card with a face value of $25. Upon the sale, the restaurant records the following entry:  

If the full amount is redeemed, the following entry is posted:

 If only part of the gift card was redeemed, for example, $15, the company must record the redeemed portion and continue to track the remaining balance:  

Scenario 2 – A $5 Promotion

 Restaurant B sells gift cards with a face value of $25 for $20. Upon the sale of the gift card, the restaurant records the following entry, which ultimately captures the net cash received:  

 If a gift card is fully redeemed, the restaurant must recognize revenue with the sale discount for the promotional amount:  

Scenario 3 – Bulk Sale To A Warehouse Retailer

 Another option that restaurant owners have is to run a promotion with a warehouse retailer. For instance, Costco buys in bulk ten gift cards with a face value of $50 for $30 and sells them for $40. At the time of the transaction, the company should record the following:  

The net gift card liability is $300, which represents the cash received from Costco.

As the gift card is redeemed, the restaurant must recognize revenue with the sale discount for the promotional amount. The example below assumes one $50 gift card that was purchased at Costco is redeemed:

How Is Gift Card Breakage Recognized Under ASC 606?

Breakage is the value on gift cards that guests never redeem. Under ASC 606, a business that expects to be entitled to breakage recognizes it as revenue in proportion to the pattern of redemptions. If you can't reasonably estimate it, you wait until the chance of redemption becomes remote. Amounts you must remit to a state under unclaimed property laws aren't breakage, so they stay out of revenue.

A solid estimate rests on your own redemption history, which is one more reason to track each program separately.

Do Gift Card Laws Affect The Accounting?

They do, because expiration and fee rules shape how long the liability lives. Federal Regulation E gift card rules generally bar gift cards from expiring within five years of issue or the last reload. In Ohio, the Ohio Attorney General's gift card guidance explains that most single-store cards can't expire or carry fees within two years, and a card sold without an expiration date stays valid until redeemed. Operators in several states will want to map each state's rules.

Do Gift Cards Affect Taxes Too?

Tax timing doesn't always follow your books. Accrual-method businesses may be able to elect to defer eligible gift card income for up to one year under Internal Revenue Code Section 451(c) and Treasury Regulation 1.451-8. Whether the election fits depends on your financial statements and how your program is structured, which makes it a good conversation to have with your business tax advisor before year-end.

What Are The Best Practices For Gift Card Accounting?

Clean gift card accounting starts the day a program launches, not at year-end close. A few habits make the biggest difference:

• Track each program separately. Give in-house, promotional, and third-party cards their own number sequences from the start, supported by a reliable gift card system.
• Gross up your general ledger (GL) accounts. Recording the liability and contra-liability separately, rather than netting them, makes reporting and reconciliations cleaner.
• Reconcile regularly. Matching your gift card system to the GL each period catches gaps before they become audit findings.
• Revisit breakage estimates. Redemption patterns shift, especially after new promotions, so your estimate should keep pace.

Skip these steps and the period closes, and breakage calculations can quickly turn into a nightmare (the kind no holiday promotion is worth).

Let's Make Your Gift Card Program Work Harder

Gift cards should give your business a lift, not a year-end headache. GBQ's restaurant industry team works with owners, operators, franchisors, and retailers to set up programs, test breakage estimates, and keep the numbers audit-ready. Empowering growth is only a conversation away: talk to an expert on our team.

Frequently Asked Questions

Is a gift card sale considered revenue?

No. Under ASC 606, cash from a gift card sale is recorded as a liability. Revenue is recognized when the card is redeemed or, for expected breakage, as other cards are redeemed.

When can a business recognize gift card breakage?

If a business expects to be entitled to breakage, it recognizes it in proportion to the pattern of redemptions. Otherwise, it waits until redemption becomes remote. Amounts owed to a state as unclaimed property are excluded.

Can gift cards expire in Ohio?

Most single-store gift cards sold in Ohio can't expire or carry fees within two years of issue under state law, and federal rules generally require at least five years. A card sold without an expiration date is valid until redeemed.