Why not giftcards

There’s misinformation swirling as the COVID-19 pandemic escalates. This is my small way to combat the spread with a topic I know something about.

Gift cards won’t help restaurants with the impact COVID-19 has on their income today. If you want to support restaurants, buy takeout or send them a check. Here’s why.

In accounting records, a gift card isn’t registered as income. This is because double-entry accounting will not register income for a service until the service has been performed. Instead, double-entry accounting logs the revenue made and then offsets the value with an entry to accounts payable. Another entry will be made only after the service is rendered. Let me illustrate.

Let’s say I’m the owner of Alex’s Pizza Palace. Ten generous patrons each buy $50 gift cards, so now I have $500 in the bank, right? I’ll send them a thank you, but I’d better not spend the money.

When my doors open again in a few weeks, those pizzas paid for with gift cards will come due. My loyal patrons will flock back to cash in on their generosity with fresh pizzas, but I won’t see a penny of profit. They’ve already paid for my pizzas (my service) when they purchased the gift cards. All those gift cards have done was shift the income on services rendered to an earlier date in the pandemic and the loss of income to a later date when I reopen my shop.

This is a simplistic example. Some customers will lose their gift cards, which amounts to service-free income for my business. I’ll be able to pay my rent this month. But double-entry accounting is about accuracy, and its method demonstrates the essential flaw in gift cards as a way to support your local business. So if you really want to support my fictional pizza shop, buy a pizza today. Or send me a check.