What would be the appropriate journal entry by MIAD to account for the customer's purchase of the apparel in February?
The appropriate journal entry for MIAD Corp in February, when a customer used $200 of the gift card, is to debit Gift Card Liability account for $200 and credit Sales Revenue account for $200.
Explanation:
The subject of this question is about accounting for gift cards in a business transaction specifically in MIAD Corp. When MIAD Corp sold the gift card in January, they recorded the cash inflow but did not recognize the revenue as it was not earned yet. In February, when the customer comes back and buys $200 worth of product, they recognize the revenue. Essentially, MIAD Corp is using the accrual accounting principle.
The appropriate journal entry by MIAD Corp to account for the customer's purchase of apparel in February would be:
Debit Gift Card Liability account for $200
Credit Sales Revenue account for $200
The debit to the gift card liability reduces the liability that was established when the gift card was sold. The credit to the sales revenue account recognizes the revenue that has been earned from selling the apparel.