Question

In January, 2020, MIAD Corp. sells a gift card for $500 and receives cash. In February, 2020, the customer comes back and spends $200 of the gift card to purchase team apparel. What would be the appropriate journal entry by MIAD to account for the customer's purchase of the apparel in February

Answer 1

Answer:

DR Deferred Revenue                                          $200

      CR Sales Revenue                                                       $200

Explanation:

Deferred revenue is the term used to describe payments made by customers to a company for goods and services the company has not provided yet.

In this case, the gift card was purchased yet no apparel had been given so this is a prepayment and will go to Deferred revenue.

When $200 was eventually spent, MIAD will recognize it as revenue and this revenue will come from the Deferred revenue account which will be debited to decrease it. The Sales Revenue account will be credited to recognize the revenue.

Answer 2

The appropriate journal entry by MIAD to account for the customer's purchase of the apparel in February is:  

Debit Deferred Revenue $200

Credit Sales Revenue $200

Based on the information given we were told that in February, 2020, the customer comes back and spends $200 of the gift card to purchase team apparel which means the appropriate journal entry by MAID on February 2020 is:

MIAD Corp Journal entry

February, 2020

Debit Deferred Revenue $200

Credit Sales Revenue $200

( To record customer's purchase of the apparel accounted for)

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