“I don’t get it,” said Tasha “are you telling me that we sold over ten thousand dollars’ worth of gift cards for the holidays but we didn’t make any sales?” 

Tasha was the assistant manager at the Logjam Restaurant, a casual operation featuring grilled steaks and barbecued meats and serving a variety of comfort food‐style homemade sides including macaroni and cheese, baked beans, and vegetables. 

Tasha was talking to Nora, the restaurant’s manager, about a special marketing promotion they had run over the holidays. The restaurant had advertised $100 gift cards for sale for only $75. Tasha had been in charge of marketing the promotion and she had achieved great success. Well over 100 such gift cards had been sold in only two weeks. 

“Well, actually they really weren’t so much like a sale,” replied Nora, “they were really more like a debt.”

“So are you saying we sold more than $10,000 worth of gift cards and now we are in debt?” said Tasha. “I don’t get that!” 

1. Assume that the balance sheet at the Logjam Restaurant includes an entry on the balance sheet under the heading “Gift cards payable.” What additional entry would have been needed to be made to ensure that the balance sheet still is balanced? 

2. If you were Nora, how would you explain to Tasha that a gift card sale generates a current liability entry on the balance sheet rather than a revenue entry to be recorded on the restaurant’s income statement?