Gift cards have been used for several centuries, though originally under the guise of company-issued scrip that was issued to employees for use in the company store or other facilities. It was essentially a replacement for the national currency. Gift cards have essentially the same role, but their distribution has now broadened beyond employees to all consumers. They are a terrific source of cash to companies, because many cards are never used -- estimates vary from 10% (TowerGroup) to 19% (Consumer Reports). In addition, users typically engage in "upspending," when they buy merchandise costing more than the value of the card. And furthermore, inventory returns tend to decline when customers make purchases with gift cards, because people buy exactly what they want with a card, as opposed to having someone else buy items for them.
So from the perspective of the accountant, isn't this great? Not completely. The payment made for an unclaimed gift card must be remitted to the local state government under escheat laws as unclaimed property (following a statutory dormancy period). Thus, the accountant must have a system for tracking unused cards. This is not an especially difficult task, since the typical gift card program involves a central database that contains a table of all the gift cards issued, and the funds paid for each one. When customers use a gift card for payment, the unique card number imprinted on the magnetic stripe on the card is matched against the central database, with the amount paid being deleted from the database. Thus, the central gift card database should contain all the information needed to comply with escheat laws.
But what about gift card fraud? Thieves may sometimes obtain access to the identification codes on gift cards that are hanging in store displays, then wait for someone to buy the cards, so that there are funds associated with them, and then draw down the card balances with on-line purchases. In these cases, the company has an obligation to reimburse the original card purchaser for the missing funds. The accountant must track the cost of gift card replacement.
And finally, there is the "gift card effect" on sales. Gift cards are only counted as sales when they are used, not when they are bought. So if a company sets up a gift card program on the assumption that gift cards will drive larger December sales for its Christmas season, it may very well find that customers buy gift cards in droves, but the recipients don't use them until sometime in the following year. This may call for some explanation by the puzzled accounting staff, which must determine why sales have actually declined for the key holiday season.