Question

Problem about gift card sales at different dates, calculate year end balance of gift card liability?

Answer 1

To calculate the year-end balance of gift card liability, add the total gift card sales to the initial liability and then subtract the value of redeemed gift cards. This provides the remaining liability at year-end.

Step-by-step explanation:

To calculate the year-end balance of gift card liability, you must first know the initial balance of outstanding gift cards at the beginning of the year, the amount of gift cards sold throughout the year, and the value of gift cards redeemed during the year. The formula to compute the year-end gift card liability would be:

Initial gift card liability + Total gift card sales during the year - Gift cards redeemed = Year-end gift card liability.

Here's a step-by-step explanation using an example:

1. Start with the initial balance of gift card liability at the beginning of the year, let's say it is $5,000.
2. Add the total amount of gift cards sold. If $20,000 worth of gift cards were sold, your liability would increase to $25,000.
3. Subtract the value of gift cards that were redeemed during the year. If $15,000 worth of gift cards were redeemed, you would subtract this from $25,000.
4. The remaining amount is the ending balance of gift card liability. So in this case, it would be $10,000.

This ending balance reflects the liability a company has to provide goods or services in the future to customers who have purchased gift cards. It's important for a business to accurately track this liability for financial reporting purposes.