What is gift card liability?

What gift card liability is

When a customer buys a $100 gift card, the business receives $100 but has not yet provided anything. Until the card is spent, the business owes the holder $100 of goods or services. Accounting standards, IFRS 15 internationally and its Australian equivalent AASB 15, treat that money as a contract liability, often shown as unearned revenue or gift cards outstanding. When the holder spends $60, the business moves $60 from the liability to revenue and keeps $40 as a liability. The total of every unspent balance at a point in time is the gift card liability. For a small cafe or salon it may be a few thousand dollars after Christmas; for a retailer it can be a real number on the balance sheet. It matters because that money may be spent on other things in the meantime, while the obligation to honour every card remains.

How it moves on the books

Each card goes through three possible events. At sale, cash goes up and the liability goes up by the card's value. At redemption, the liability goes down and revenue goes up by the amount used, in full or in part. The third event is breakage: some cards are never fully used, because they are lost, forgotten or left with a few dollars on them. Under IFRS 15 and AASB 15, if a business can reliably estimate how much will go unredeemed, it recognises that expected breakage as revenue in proportion to the pattern of redemptions, rather than waiting for each card to expire. A business without enough history to estimate recognises breakage only when the chance of redemption becomes remote, typically at expiry. GST in Australia is usually accounted for when a face value voucher is redeemed rather than when it is sold, which is another reason to track sales and redemptions separately.

When it matters

Gift card liability starts to matter as soon as a business sells cards in any volume, and it matters most around Christmas and Mother's Day, when sales spike months before redemptions. It matters for cash planning, because money banked in December may need to fund services delivered in March. It matters if the business is sold, since a buyer will ask how much is owed on outstanding cards. And it matters legally: since 1 November 2019, most gift cards sold in Australia must have an expiry period of at least three years, must show the expiry date clearly, and cannot be reduced by post purchase fees such as activation or balance enquiry fees. Some cards are exempt, including reloadable cards, cards bought at a genuine discount, loyalty and reward cards, and promotional cards given away free, but the default for a card sold at face value is three years.

Common mistakes

Recording every gift card sale as revenue on the day it is sold, which overstates income and hides what is owed. Printing a one year expiry on cards, which breaches the Australian rules for most cards sold since 2019. Charging a monthly fee that eats the balance. Losing track of partial redemptions, so a $100 card used for $30 is treated as finished. Issuing codes that are short or sequential, so they can be guessed, or showing the code to anyone other than the buyer and staff. Not deciding what happens to cards when the business changes hands. Counting expected breakage as revenue in the first month without any history to support the estimate. And having no in store way to deduct a card's value, so staff fall back to writing balances on the card in pen, which nobody can check later.

Where it shows up in OneCraft

When a site is generated with gift cards, the AI builds them into the site's own database from its gift cards guide. Cards are issued when an order is paid, with a 16 character code from an alphabet that leaves out easily confused characters, an initial value and a running balance. Every change is logged as an event: issued, redeemed, refunded, adjusted or used in store, which is the record a bookkeeper needs to work out the liability. Customers check a balance by code; only the buyer and admins can see a code. Staff can deduct in store use from the admin area. The guide sets expiry by the owner's local law, at least three years in Australia, and none when the brief does not ask for one. Selling cards needs Stripe connected, which the free plan cannot do, and the site cannot email the recipient: the buyer forwards the code or prints the card.

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