Final answer:
The journal entry for a customer using $65 of a $100 gift card includes debiting the Gift Card Liability account for $65 and crediting the Sales Revenue account for $65. This reflects the redemption of the gift card and the recognition of revenue.
Step-by-step explanation:
Understanding Journal Entries for Gift Card Transactions
When a customer uses a gift card to make a purchase, the accounting treatment involves two main entries. Initially, when the gift card is sold, it is recorded as a liability. The revenue is not recognized until the gift card is redeemed for goods or services. In this scenario, a customer is using $100 in gift card value to make a purchase, and only $65 of this gift card's worth is being used.
Journal Entry for Purchase Using Gift Card
When the customer redeems the gift card, the merchant must reflect this in their accounting records with the appropriate journal entry. The entry to record when a customer uses a portion of a gift card's value is:
Debit Gift Card Liability for $65 (to decrease the liability since part of the gift card has been used)
Credit Sales Revenue for $65 (to record the income earned from the sale)
This journal entry transfers the liability from the gift card account to sales revenue, now that the merchant has fulfilled their obligation by providing goods or services in exchange for the gift card value. The remaining balance on the gift card, now $35, is still held as a liability until it is used or expires.
Note that no entry is made to Cash or Inventory accounts in this case because the transaction involves the redemption of a previously sold gift card, not an immediate exchange of money or inventory adjustments.