How to Record Donated Gift Cards in Accounting

Receiving donated gift cards sounds simple, but for accountants and bookkeepers, it can create a few headaches. Without the proper journal entries, these contributions can misstate your revenue, leave your expenses untracked, and create weak points in your internal controls. This tutorial breaks down exactly how to record donated gift cards, making sure your books stay accurate and audit-ready.

First Things First: Why Precise Accounting for Gift Cards Matters

Before we jump into the numbers, let’s understand the "why." Donated gift cards are a form of non-cash contribution. According to Generally Accepted Accounting Principles (GAAP), nonprofits must recognize all contributions at their fair market value when received. For gift cards, this is easy—the value is stated right on the card. Ignoring this step isn't just a minor oversight; it has real consequences.

• Accurate Financial Reporting: Correctly recording donated gift cards ensures your revenue is not understated when you receive them. It also ensures that when you redeem a gift card, you classify the expense correctly, applying the matching principle. Your Statement of Activities shows the true generosity of your donors, and your Statement of Financial Position reflects the assets you truly have on hand.
• Internal Controls: Gift cards are like cash. Without a formal process for recording and tracking them, they can easily get misplaced, lost, or misused. Proper accounting entries create a paper trail, building a strong internal control system that protects your organization’s resources.
• Audit Readiness: When an auditor reviews your financials, they look for consistency and clearly stated compliance on accounting transactions. If you do not have clear records that trace gift card donations, even small-value gift cards can cause unnecessary delays in your audit.

Scenario: A Nonprofit Receives Gift Cards

Let's walk through this process from a nonprofit’s perspective, as charities are far more likely to receive and use gift cards in their operations. Our example: a community support shelter called "CommunityFirst" receives two $100 Target gift cards from a generous donor.

Step 1: Record the Donation as an Asset Account as it is Received

Upon receiving the donation, CommunityFirst must record both the revenue and the corresponding asset. The first step would be to estimate the gift card's fair market value (FMV); this is straightforward—the fair market value is precisely its stated value: $200.

Once familiar with the Fair-Market-Value concept, your next logical step would be choosing the Chart of Accounts account names where it will be held while the funds received are yet unspent. Since a gift card represents "a future economic benefit as a value now being kept but will be spent at redemption," we must make a new asset account on our books.

There are typically two main options under which our "prepaid gift cards" item can be created, which will also depend on our accounting software of choice, such as QuickBooks or Netsuite. A possible name for this asset account could be:

• Prepaid Asset, Prepaid Gift Cards: We should select a Current-Asset type account. This helps when you receive cards occasionally and distinguishes these gift cards from the normal current-checking or Operating/cash accounts since they should not impact cash flow analysis. In other instances, when a nonprofit is constantly receiving gift card funds, making them part of a "gift card/voucher" permanent funding campaign, keeping the items on their own chart of account helps even more for monitoring these specific financial items.

The general journal entry should look like this:

Date: [Insert Date Here]

Accounts:

• 100: Donated Gift Cards (Asset) - Debit: $200

• 500: Contributions Revenue - Unrestricted - Credit: $200

• Why not Debit to Cash? While they are cash-equivalent, the gift cards still aren’t cash. You can’t put them on your deposit slip together with your monthly bank transfers. Separating them as a new asset accurately represents funds held on standby for redemption in your balance sheet reports, making monthly closings easier and for internal auditors to review.

• Why is Credit to Revenue so immediate here? When following GAAP, all types of donations or revenue are recognized upon receipt, not when they are ready for use. Any promises towards future funding must be recognized at the time of the receivable's agreement.

Step 2: Track Usage / Record Redemption Correctly

Once our previously donated $200 is partially redeemed (e.g., $80 spent at Walmart for supplies), a new general journal entry is created:

Date: [Insert Date Here]

Accounts:

• 7401: Office Supplies (Expense) - Debit: $80
• 107: Donated Gift Cards (Asset) - Credit: $80

This reflects how the spending corresponds to an actual "Expense." The account name "Office Supplies" might be more appropriately named depending on the actual use, such as "client programs - support/outreach." The main goal here is to adjust the balance in the "Donated Gift Cards" asset account, reflecting the reduction post-spending to maintain accurate records.

Dealing With Donor Restrictions

Not every gift is unrestricted. Some donors specify their gifts be used for specific purposes, such as purchasing school items. When this occurs, a special "School Supplies program-support" account should be created, and accounting treatment changes to reflect these restrictions.

Journal Entry for Donor-Restricted Gift:

• Donated Gift Card - School Supplies (Asset) - Debit: $200
• Revenue with Temp Restriction - Credit: $200

Once CommunityFirst uses these funds, for example, purchasing school items worth $50, the journal would reflect this:

1. Decrease in the Donated Gift Card (restricted):

• School Supply Program (Expense) - Debit: $50
• Donated Gift Card Restricted Program (Asset) - Credit: $50

2. Release temporary restrictions:

• Release from temp-Restr (from restricted) - Debit: $50
• Release from temp-Restr (to unrestricted) - Credit: $50

This process ensures expenses are correctly recorded according to donor restrictions and releases funds back to general use upon completion.

Final Thoughts

Recording gift cards may seem trivial now, but having proper accounting controls ensures reliable reporting data throughout the fiscal year. Accurate entries when the gift card is received and whenever there is spending are crucial. Understanding GAAP standards on handling non-cash contributions helps manage restricted and unrestricted funds efficiently.

Researching niche accounting rules, like treatments for donor-restricted assets, can consume substantial time as professionals navigate state guidelines and forums. We built Feather AI to eliminate that heavy manual search—just ask a question in plain language and get answers backed by authoritative IRS guidance or state tax code. It helps you confidently find answers in seconds, not hours.