University of Central Florida (UCF) ACG2021 Principles of Financial Accounting Final Practice Exam

When cash is collected after selling a gift card, the account that receives credit is Cash. This represents the inflow of cash into the business as customers purchase gift cards.

The selling of a gift card generates cash immediately, but it creates a liability for the business because the gift card represents a promise to provide services or goods in the future. As such, the amount collected from the sale of the gift card does not count as revenue until the gift card is redeemed.

Once the gift card is sold and cash is received, the liability account that typically reflects this obligation is deferred revenue or unearned revenue. This liability account is what will later be credited when the gift card is redeemed for goods or services.

In summary, upon the sale of a gift card, cash received is credited to the Cash account, increasing the business's cash balance. At the same time, a corresponding entry would be made to recognize the liability created from the gift card sale, typically reflected in the deferred or unearned revenue account.