How do I balance my cash-in-hand account if it’s negative because of gift cards?

Feb 21, 2019
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My profit/loss statement is accurate. All of my checking accounts are balanced and accurate. All of my liability accounts are balanced and accurate (including gift card revenue). However, my cash in hand is a huge negative. It has happened the past couple of years because of the gift card situation. How do I balance my cash-in-hand account?

Gift card accounting can get a bit confusing because it adds another dimension to the sales process. In a typical transaction you provide a product or service and you receive cash. Simple. But in a gift card situation, you start by receiving cash and providing no product or service right away. When the gift card is redeemed, you provide the product or service for which you received cash previously. 

Normally, gift cards result in a positive cash position because you receive the cash in advance. So, having negative cash in hand as a result of gift cards should not happen. I can only think of one potential issue for you to explore.

Check your definition of cash in hand. You refer to it as an account, but cash in hand is a metric that includes any cash in your register plus any money in bank accounts that is readily accessible, less outstanding checks. The cash in hand metric tells you how much you have available to pay near-term expenses.

I suspect that you might be including gift card liability in your cash in hand calculation. This could easily cause the metric to turn negative, especially if you have a growing balance of outstanding gift cards.  Your gift card liability may seem like it should offset cash, but remember that you do not redeem gift cards for cash. Rather, you redeem gift cards for products or services.

For example, if you sell a $50 gift card, you increase your cash and increase gift card liability. You may then decide to use the cash to buy inventory. When the gift card is redeemed, you do not decrease cash; you decrease inventory. If you included the gift card liability when you calculated cash in hand, then the result would appear negative from the time you purchased the inventory until the gift card was redeemed.

If this doesn’t resolve your situation, I strongly suggest you reach out to a local CPA for a review of your accounting system and entries.

For more resources, check out PICPA’s Money & Life Tips, Ask a CPA, or CPA Locator.

Answered by: Michael F. Cade, CPA, CGMA, is a strategy consultant and executive coach for MFCCoach LLC in Morrisville, Pa.

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