Overview
Blue Onion's Gift Card Journal Entry provides a detailed journal entry for all gift card activities, including issuance, redemptions, and expirations, as well as categorizations of the different gift card sources.
Gift cards are primarily a balance sheet activity in Blue Onion, not a revenue activity. A gift card creates a liability when it's issued and removes that liability when it's redeemed or expires. Understanding this lifecycle is key to reading the journal entry correctly.
🆕 The Gift Card Lifecycle: How Debits and Credits Net Out
Gift cards move through three phases in Blue Onion. Across the full lifecycle, the debits and credits should net out to a neutral balance sheet impact.
Phase 1: Issuance A gift card is created — either purchased by a customer, issued as a complimentary card by an internal team, or generated automatically by a return/exchange service (such as ReCharge or Loop). This creates a credit to the gift card liability account.
If a customer purchased the gift card, the offsetting debit is cash/AR (recorded in the Orders journal entry).
If the gift card was complimentary or generated by a return service, the offsetting debit is an expense account (refund expense, exchange expense, marketing expense, etc.). This is why complimentary gift card entries show an expense — the company gave something of value away, and accounting needs to recognize that cost somewhere.
Phase 2: Redemption When a customer uses a gift card toward a purchase, the liability is reduced. This is recorded as a debit to the gift card liability account, with the offsetting credit going to deferred revenue or sales (depending on your revenue recognition policy). Redemptions typically appear in the Orders journal entry, where the gift card acts as a form of payment (similar to how a credit card payment would be recorded).
Phase 3: Expiration If a gift card expires before being fully redeemed, the remaining balance comes off the books. This is recorded as a debit to the gift card liability with a credit to "income from gift cards" (or, depending on jurisdiction, escheatment liability — see Gift Card Expirations section below).
Why the totals net out: Every liability created in Phase 1 is eventually removed in Phase 2 or Phase 3. Over the full lifecycle of a gift card, the balance sheet returns to neutral. You won't see an ever-growing gift card liability from this flow — if the liability is growing, it means customers are buying/receiving more gift cards than they're redeeming (which is expected for an active business).
How Gift Card Activity Appears Across Your Journal Entries
Gift card activity is split across two journal entry types. Knowing where each activity lives helps you trace any single gift card's impact:
Activity | Journal Entry | What's recorded |
Customer purchases a gift card | Orders JE | Credit gift card liability, debit AR/cash |
Customer uses a gift card toward a purchase | Orders JE | Gift card acts as a form of payment (clearing against liability) |
Gift card is issued as complimentary or by a return service | Gift Card JE | Credit gift card liability, debit expense |
Gift card expires | Gift Card JE | Debit gift card liability, credit income or escheatment liability |
Gift card is refunded or balance is adjusted | Gift Card JE | Various, depending on scenario |
This separation keeps the Orders journal entry focused on customer-driven activity (purchases and redemptions) and the Gift Card journal entry focused on company-initiated activity (issuances, expirations, adjustments).
Sources of Gift Card Liabilities
The journal entry includes several sources, such as Shopify, Catch Rewards, Complimentary, ReCharge, Loop, and Rise.ai gift cards. If these sources are relevant to your organization, they will automatically populate in the journal entry:
Catch Rewards:
Transaction Entry: An increase in gift card liability is recorded with a credit to the liability account and a debit to refund expense. This reflects the issuance of gift card liabilities by Catch as a customer accommodation.
Complimentary Gift Cards:
Issued by Internal Teams: These are gift cards issued by customer service, marketing, or other internal teams without compensation received in return.
Transaction Entry: An increase in gift card liability is recorded with a corresponding debit to a gift card expense account. The expense account selected depends on the purpose — for example, replacement expense for customer service issues, service expense for operational issues, or marketing expense for influencer gifting.
Sub-Ledger Detail: Click-through functionality allows viewing detailed sub-ledger information, including notes and categorizations.
Return & Exchange Services (ReCharge, Loop, etc.):
When a return or exchange service issues a gift card automatically (e.g., as an exchange credit), it flows through the same complimentary treatment — a liability is created with an offsetting expense. Most of these gift cards are redeemed quickly, often on the same order that prompted the exchange.
Rise:
Similar Treatment: The transactions for Rise follow a similar pattern to Complimentary gift cards.
Gift Card Expirations
Blue Onion will automatically track any gift cards that expired within the period and provide a debit to remove the gift cards from the gift card liability and a credit to income.
Most jurisdictions no longer allow for the expiration of gift cards, so this section of the journal entry may just be used to surface expiration dates that need to be extended, rather than true revenue. For jurisdictions that do require escheatment (for example, California), the credit may need to be redirected from "income from gift cards" to an escheatment liability account, reflecting that the balance is now owed to the state rather than to the customer.
Please consult with your tax or accounting advisor on the correct treatment for your jurisdictions.
Investigating a Specific Gift Card
If you need to understand how a specific gift card affected your books — for example, tracing a complimentary gift card back to the order or service that created it — you can use the Transaction Profile Pages workflow:
Use the global search to find the specific gift card or the order it was redeemed against
Review the gift card profile page to see issuance date, original amount, and redemption history
Click through to associated orders or refunds to see where the gift card originated and where it was used
Scroll to the Journal Entries section on the profile page to see every entry that referenced this gift card
This workflow is especially useful when a customer or auditor asks why a specific gift card shows up in an expense account — tracing it back usually reveals whether it came from a return service, an internal issuance, or an expiration event.
For more detail, see Understanding Transaction Profile Pages.
While we are a team of former accountants, we are not in the business of providing professional services. The information presented is for informational purposes only and is not intended to be a substitute for professional accounting, tax, or legal advice. We recommend that you consult with a qualified accountant, tax advisor, or lawyer who is familiar with the specific needs and nuances of your business.