Exciting Shopping News from The GAP!

Have you heard the latest about The GAP?

Did you know that a customer recently made a purchase of $340 worth of merchandise from The GAP using a gift card? What do you think is the journal entry that The GAP will record for this transaction?

a. DR Cash $340; CR Unearned Revenue $340

b. DR Revenue $340; CR Unearned Revenue $340

c. DR Cash $340; CR Revenue $340

d. DR Unearned Revenue $340; CR Revenue $340

Answer:

Option (d) is correct.

Exploring The GAP's Journal Entry

Exciting news from The GAP! A customer recently used a gift card to make a purchase of $340 worth of merchandise. Now, let's dive into the journal entry that The GAP will record for this transaction.

When a customer makes a purchase using a gift card, the value of the gift card is treated as unearned revenue in the books of The GAP. This means that the revenue is not yet earned until the merchandise is delivered or the service is provided. On the other hand, the sales revenue from the merchandise sold is recorded as revenue.

So, for the purchase of $340 worth of merchandise using a gift card, the journal entry for The GAP would be:

Unearned revenue A/c Dr. $340

To sales revenue A/c $340

This journal entry ensures that the value of the gift card is accurately reflected as unearned revenue until the merchandise is delivered, and the sales revenue is properly recorded for the merchandise sold using the gift card.