Natalie has had much success with her cookie-making lessons over the last number of months. A few parents who have attended have shown interest in purchasing gift certificates from Natalie. Natalie is considering a gift certificate that would include a one-hour cookie-making lesson and all of the supplies needed to create two dozen cookies.
Natalie wants to make sure that she has considered all of the risks and rewards of issuing gift certificates. She has come to you with the following questions:
1. From what I understand, if I sell a gift certificate, I need to be recording the money received as "unearned revenue." I am a little confused. How is the use of this account the same as the money that I received from schools that have paid me a deposit for pre-booked cookie-making lessons?
2. What if I record the sale of gift certificates as revenue instead of unearned revenue? Technically, I have made a sale of a gift certificate and therefore should be recording amounts received as revenue for the sale of a gift certificate. What if a gift certificate is never used? Does this not justify a sale being recorded?
3. How do I make sure that the gift certificates that I have sold are in fact used? How do I make sure that the ones that I have sold have not been duplicated and used again?
Instructions
Answer Natalie's questions.