Are gift card REDEMPTIONS being counted as income???

[SMW]

Are Gift Card REDEMPTIONS being counted as income? It looks like the sale and redemption is part of my Net Income total.

[Jessdemahy]

I’m saying in the reporting feature only since reports are for us to turn off sales redemptions and only count any new gc sales made 

[woolworkshop]

This is still an issue! I’ve been looking at my books and realizing that Square double counts the gift cards in reports by the time you get to the net total collected. Gift card sales (where you actually receive money) are counted as positive income in the total sales, but gift card redemptions are also shown as positive income in your total collected amount, so your “net total” will never equal the amount deposited into your bank account. This is extremely frustrating when trying to understand what your actual net sales are and getting them to balance with your bank account. 

[ryanwanner]

@woolworkshop When you collect money to load gift cards, the sale is not counted towards your daily sales, it is shown as a secondary line item. You receive the money from the sale, but that money technically isn’t yours and should show as a liability on your books. 
When the card is used in a sale, that’s when the money technically becomes yours and when it’s counted as a sale on your books. You won’t see any money added to your balance for the day at this time either. 

The best way to see this is to ring up a gift card on a day you’re closed or before opening: you’ll see the transaction listed as Gift Card Sold on your reports but your sales for the day will still be zero and your balance will increase by whatever the card amount is less fees. The next day before opening, use that gift card for a test sale, and you’ll see that your sales increase but your balance stays the same. 

Clear as mud, right? 

[jennangel5]

This doesn't make any sense. Because if someone never redeems a gift card (losing it or whatever), then that money goes no where?? And it just sits in an account forever? Sales of gift cards are sales. They should be recorded as such. When someone redeems a gift card, that should not be recorded as a sale, because they are using "store credit" at that point. 

[ryanwanner]

@jennangel5You receive the funds as soon as the gift card is purchased. It arrives in your account just like any other transaction during the day. The total transaction number for the day will increment when you load a gift card, simply because Square counts every ticket (including no sales!) as a transaction.

Sales of gift cards are technically not sales. You're basically creating a version of an IOU when a customer purchases a gift card. The best way to look at is that your customer is loaning you the cost of the gift card for future purchases. If you were to close your business, you would be liable for the outstanding balances on a gift card the same way you're liable for a loan you have on your business.

On your PnL, the gift card sale should not be included in your daily sales, it should be a line item as a short term debt to your business. When the card is redeemed, your PnL should have the amount of the redemption removed from that short term debt line.

This is how it is reported in Square as well: when you sell a gift card, the amount of the gift card sale does not report in your Net and Gross Sales amount. It shows as a separate line item. Using your example, if you look at your Sales Summary report for today, you'll see a Gift Card Sales line under Net Sales, Taxes, and Tips. This dollar amount will be included in your Total Sales number, but that is there just to wrap up the total day. The numbers you'll need to pay attention to for your books are the Net Sales and Gross Sales numbers.

As I said in another part of this post, if you want to see clearly how GC sales are counted, load a GC before you open one day. Your Net and Gross Sales numbers will still show $0.00 while the GC Sales line will show the amount you loaded. The Total Sales number will show the load plus no sales, but again that's just to wrap up the day.

When the GC gets redeemed, you will see an increase to your Net/Gross sales numbers, but your transfer/deposit amount will not increase. This is because you already got that money when you loaded the card. For your example today, your $176 does include that redemption. If you did not have that redemption today, your Net Sales for the day would have been $156 plus the $40 in GC sales.

Let's look at it this way:

Action	Counted as a Sale?	Money Transferred	On your PnL
Gift Card Loaded for $100	No	$100 less fees	Gift card Payable account increased, no change to sales
Gift Card Balance checked	No	None	No change
Gift card partially or completely redeemed	Yes	None	Gift card payable account decreased for the amount, add that amount to daily sales

It took me forever to wrap my head around how Gift Cards work. The biggest thing I can recommend is that you don't think of a GC load as a sale: it's a debt you're taking on. It's only counted as a sale when the card comes back into your store.

[jennangel5]

I completely understand what you are saying. The problem is that the Total Sales and Total Collected figures are including the Gift Card sales AND the transactions the gift cards are redeemed. I ended the day with these numbers:

Gross Sales $186

Discounts -$14

Net Sales $172

Gift Card Sales $40

Total Sales $212

Total Collected $212

Cash $137

Card $55

Gift Card $20

I did not collect $212. I collected $192. I collected $137 in cash (which includes $40 in Gift Card sales) and $55 in credit which totals $192. The Gift Card redemption of $20 was added to the Total Collected already in the form of the Cash it was paid for with in the $137 because the customer paid for the gift cards in cash. So it is being added to the total twice. Likewise, the transactions where the gift cards were redeemed were added to the Total Sales when they calculated the Net Sales and then they added the $40 in Gift Card Sales to the Total Sales also. 

I verified this by going to the transactions for today and adding up every single transaction. They all together equal $212, this includes the transaction with the $40 in Gift Card Sales and the transactions where $20 of those same gift cards were redeemed. So the purchase of the gift cards counted as a sale and the use of the same gift cards counted as a sale. 

If the one woman that bought all $40 in gift cards today would have come back to redeem all $40 instead of just $20, this would be much cleaner to explain. 

To use your suggestion as an example, if I were to sell myself a $10 gift card and paid cash, then used that gift card to buy $10 in products from myself, the numbers would look like this:

Gross Sales $10

Discounts $0

Net Sales $10

Gift Card Sales $10

Total Sales $20

Total Collected $20

Cash $10

Credit $0

Gift Card $10

BUT THERE IS ONLY $10 IN MY DRAWER!! Total Collected is $10, not $20!!

The report is going to show Total Sales of $20 and Total Collected $20. This is not accurate and makes Square's reports completely useless. I run food trucks and sometimes the event coordinator uses our reports to see how much we owe the venue for a vendor fee for the day in cases where we agree to pay a percent of sales. This is going to make us have to pay more because it is reporting the sales of the gift cards and the sales they are used on making the total sales double for those transactions.

[jennangel5]

WHAT WOULD IMMEDIATELY FIX THIS ISSUE IS THIS FORMAT:

Gross Sales $10

Discounts ($0)

Net Sales $10

Gift Card Sales $10

Gift Card Redemptions ($10)

Total sales $10

Total Collected $10

Cash $10

Credit $0

This way is giving you a line item to track Gift Card Sales and Gift Card Redemptions so that you may do whatever you need to do on the back end, but it is balancing out what is actually being taken in on that day as well as that month, year, etc. This has made me realize I have been using the wrong Total Sales for as long as I have been using Square - over 2 years. 

[jennangel5]

To apply this format to my specific numbers, to see how it balances with a real world example:

Gross Sales $186

Discounts ($14)

Net Sales $172

Gift Card Sales $40

Gift Card Redemptions ($20)

Total Sales $192

Total Collected $192

Cash $137

Credit $55

[ryanwanner]

@jennangel5I'd like to use an example from my shop, since I had a similar thing happen the other day: I sold $50 in gift cards (cash sale) and redeemed $144.79

My daily sales report for 2/22/23:

I fully agree with you that Total Sales should read Total Revenue on the sales section, or, barring that, Gift Card Sales should be changed to Gift Card Loaded. Or, better yet, Gift Cards should get their own section on the sales summary screen.

The Total Sales line here tells me that I had a grand total of $801.86 in currency pass through my hands. This matches the Total Collected line, since accounting practices dictate that both debits and credits have to match when balancing the books. The $50 in GC Sales is included in my Cash Collected line, simply because I got that cash handed to me at the time the card was loaded. If that GC load was paid by credit card, I would have had $43.79 in cash and $613.28 in CC. That $50 is not considered a sale at this point. As I said earlier, that $50 is basically a loan towards future purchases. Removing that $50 in GC Sales would not change the Gross or Net Sales lines at all, and it would reduce my Cash Collected line to $43.79. For the $144.79 in GC redemptions, that amount is factored into the Gross and Net Sales lines since a purchase was made against the loan given to me in the form of a GC load earlier on. Removing the GC Collected line would negate the Gross and Net sales lines by $144.79.

When I sat down to balance my books for the day, I had $93.79 in cash, and the bank showed a deposit of $482.32, which was the $563.28 less fees and loan payment. In physical currency, I had $576.11 in my hands. I then was able to deduct $144.79 from my Gift Cards liability account in Quickbooks. I then added $50 to that GC liability account to factor the GC load.

So yes, you're correct that Gift Cards muddy this report and can make it seem like things are getting double reported. They are not, I promise. No physical currency changes hands when a card is redeemed, and no sales are recorded when a card is loaded. Thinking of it that way, having a dedicated Gift Card liability account in Quickbooks (or your accounting software of choice), and using the Gross and Net Sales line when entering your sales reporting in QB will always make your numbers work.

Clear as mud!

[Edited to add] The new Transactions layout makes this clearer than before, too:

 You'll see that the $801.86 is listed as total collected but my Net Sales amount is lower to factor out that GC sale. The dashboard now explicitly says that Net Sales do not include the sale of Square GCs.

[jennangel5]

Nothing that you said makes the problem any less a problem. Total Sales and Total Collected are not accurate. The sale of the gift card and the redemption of the gift card are both being counted towards the report as positives and it just does not make sense. I did it for you. I used one of my locations that did not have sales for today. I bought a $10 gift card. I used that gift card to buy $10 in product. Here are the results. Now, this is the first day in business. So it shows I have $20 in sales and collected $20. But there's only a $10 bill in my drawer and no floating gift cards. The one and only gift card purchased has been redeemed. 

[ryanwanner]

@jennangel5You are right and the numbers are right!!

Let's look at it this way: we have three "buckets" for our business. A Sales bucket (income), a payments bucket (physical currency), and a Gift Card Bucket (a holding account).

You load a $10 GC and it's paid for with cash.

Your sales bucket has $0 in it, your payments bucket has $10, and your GC bucket has $10. Again, do not think of a GC load as a sale: the sale is recorded when the card comes back in.

The GC is now used in its entirety to purchase product.

Your sales bucket now has $10 in it, your payments bucket still has $10 because no physical currency is traded, and your GC bucket is $0. That $10 from the GC bucket is moved to your sales bucket.

On the reports, the sales and GC loads show as $20 total. Your collected reports show $20 total, $10 in cash and $10 removed from the GC bucket. Since all the numbers have to equal out, Square shows the $10 GC redemption as collected because it's "collected" from the GC bucket. Everything evens out.

I definitely agree that the naming could be improved upon. But I don't think that'll happen any time soon. As small business owners, we always need to be able to pivot and adjust on the fly in order to succeed in our venture. I think this is one of those times where you just have to trust the math over the naming conventions.

[jennangel5]

Square’s only obligation is to tell me what NEW money entered my business. Period. The accounting I do after that is on me. I think you’re defending this so hard because you’re looking at it as if there’s some accounting that’s suppose to go on in your Square account. There’s not. You keep explaining where the money is suppose to go in your books but that’s not the issue here. The issue is Square is only suppose to be reporting NEW money entering the business. Just because it’s Gift Card revenue, doesn’t mean they have to report it as a positive when it’s spent. Especially if they report it as a positive when it’s loaded.

[ryanwanner]

@jennangel5 I’m defending nobody. My rationalizations come from 12 years with Square and 10+ years with gift cards through their system, and, after a month or two of wrapping my head around it, I have had no issue with how square reports gift cards on the sales summary screens. I have been able to track each and every card from load to redemption, know how much I have made each day in physical currency, and know what my outstanding balance is on my gift cards all with what has been provided to me. 

obviously we have different ideas on how to manage our businesses, and I have no issue with that. Maybe gift cards aren’t a good fit for your business, maybe I’m just talking out of my rump. 

Good luck!

[jennangel5]

How does how you or I manage our business, or how you track the gift card usage, change by the line item of gift card redemption becoming a negative and moving to the same area of the report that Gift Card Sales is reported and as a positive? You have to subtract that number from total sales and total collected as it stands to get your actual numbers for the day anyway. So, by them putting it in the report that way, the picture of what sales you actually did that day becomes much clearer and the same information is given.

So when you see a ‘Gift Card Sale’ amount (+) on the report, you know to add that amount to your liability account. When you see a ‘Gift Card Redeemed’ amount (-) on the report, you know to subtract that amount from your liability account. But your Sales will still stay the same overall. Because Gift Card Sales are not actually Sales so it balances perfectly.

You’ve warped your thought process around this so hard, you think you are doing more Sales than you are. When I have to report my Sales to my leasing office for my brick and mortar location or the event organizers for my mobile units, I have to jump through hoops to get my actual numbers instead of being able to just pull up the report on my register with two touches of the screen. 

Edited to add:

[ryanwanner]

@jennangel5I see exactly what you mean, I'm just looking at it from a different angle, that's all.

I'm curious: do your gift card transactions show on your Profit and Loss statement? For me, the redemption of the card shows as an actual sale in the store. The gift card load itself does not show on my PnL since it's considered a liability account.

This has been confirmed by my CPA and my bookkeeper as the best way to show gift cards, and with them, my admin, and myself looking at the numbers, I know that I'm not overreporting my income.

I personally don't trust Square's numbers for any sales reporting when it's time to talk to landlords or the IRS. The reports point me in a direction that works for day-to-day information and sales trends, but I rely on Quickbooks to really give me an accurate read. This allows me to fix all the random things that I don't believe are reported correctly (ie Gift Cards...). Should this be something that is fixed? Definitely. I'm just "moving at the speed of business" and don't have the time to wait for it to get fixed. It's easier for me to find a solution using the tools that are available at that moment than it is for me to complain that what's available isn't right for my business.

[jennangel5]

Also, I just counted my transactions individually for the day, and the report is saying I have:

$196 in sales (I sold $40 in gift cards today and that is included)

$196 total collected (including $20 of gift card redemptions)

I actually have $176 in sales (including the $40 in gift cards sold) and $20 in gift card redemptions. 

So the system is recording $40 in gift cards sold in the TOTAL SALES. And then also counting the $20 of redeemed gift cards in TOTAL SALES as well. It is adding the same $20 two times. 

[jennangel5]

YES THIS IS STILL AN ISSUE!

I just counted my transactions individually for the day, and the report is saying I have:

$196 in sales (I sold $40 in gift cards today and that is included)

$196 total collected (including $20 of gift card redemptions)

I actually have $176 in sales (including the $40 in gift cards sold) and $20 in gift card redemptions. 

So the system is recording $40 in gift cards sold in the TOTAL SALES. And then also counting the $20 of redeemed gift cards in TOTAL SALES as well. It is adding the same $20 two times.