Using Gift Cards for Budget Purchases

[DBS_CBC]

Our Church Preschool has initiated a fundraising campaign through RaiseRight which is basically gift card or script fundraising. Participants purchase a name brand gift card for face value through their RaiseRight account and the preschool receives a percentage of their purchases from the vendor.
There is no problem with accounting for the percentage that the preschool receives since it is simple income.
However, the preschool wants to purchase the gift cards for their own use and that is a different situation. When they purchase a gift card, it is discounted up front, so they may only pay $95.00 for a $100.00 gift card. They may make multiple purchases at different times before the card is depleted. The purchases they will make with the cards are purchases that would normally be made from their checking account and posted to an expense line item in their budget.
I am considering setting up an Asset Account to handle their use of the gift cards. When they purchase a gift card, I would transfer the actual cost of the card from checking to the gift card asset account. As they make purchases with the card, I would credit the gift card asset account and debit the appropriate budget expense account with the cost of the item purchased less the card discount percentage. Since there may be multiple name brand cards active at one time, I was considering the possibility of using sub-accounts to the gift card asset account to track the amounts on each name brand card.
Is this an appropriate process to handle the preschool’s use of the gift cards for budget purchases or is there another way to handle this. Thanks for any advice you can give.

[NeilZ]

Our Church Preschool has initiated a fundraising campaign through RaiseRight which is basically gift card or script fundraising. Participants purchase a name brand gift card for face value through their RaiseRight account and the preschool receives a percentage of their purchases from the vendor.
There is no problem with accounting for the percentage that the preschool receives since it is simple income.
However, the preschool wants to purchase the gift cards for their own use and that is a different situation. When they purchase a gift card, it is discounted up front, so they may only pay $95.00 for a $100.00 gift card. They may make multiple purchases at different times before the card is depleted. The purchases they will make with the cards are purchases that would normally be made from their checking account and posted to an expense line item in their budget.
I am considering setting up an Asset Account to handle their use of the gift cards. When they purchase a gift card, I would transfer the actual cost of the card from checking to the gift card asset account. As they make purchases with the card, I would credit the gift card asset account and debit the appropriate budget expense account with the cost of the item purchased less the card discount percentage. Since there may be multiple name brand cards active at one time, I was considering the possibility of using sub-accounts to the gift card asset account to track the amounts on each name brand card.
Is this an appropriate process to handle the preschool’s use of the gift cards for budget purchases or is there another way to handle this. Thanks for any advice you can give.

In reality, you should not subtract the discount as that is actually added income. They pay $95, but the purchase power is $100, so that is $5 of added income.

You would NOT transfer the cost from checking to the asset, you'd be double charging yourself. You've already paid for the card, $95 to the RaiseRight organization, you'd then be moving another $95 to the asset. I would create a separate Asset and Fund Balance for the cards, and enter a transaction in Fund Accounting to increase the Asset and Fund Balance.

I'm not exactly sure how to handle this, I would check with an accountant familiar with Fund Accounting (Cash Basis). For some reason I'm thinking it should be handled as a liability in some manner, but again you've paid for the card already so the expense has already been made.

I'm not sure if this is a good idea in order to get an extra $5 purchasing power per $100 as it can be an accounting nightmare, and trying to track expenses is even worse.

[DBS_CBC]

Neil,
Thank you for responding to my query. I’m not sure that I understand your reply or maybe I didn’t make the situation clear, so please bear with me while I try again.
When our preschool first purchases a 100.00 gift card for $95.00, they are not actually spending any money. They are exchanging a $95.00 Cash asset in their Checking Account for a $100 Gift Card asset costing $95.00. That is why I was proposing transferring $95.00 from their Checking asset account to a Gift Card asset account when the card is purchased. At this point they would still have the same total assets as they had before the card purchase, just in different forms. Then, let’s say they make three purchases of Classroom Supplies using the gift card. Two purchases of $25.00 each and one of $50.00. The actual (5%) discounted costs of the purchases would be two at $23.75 and one at $47.50 for a total cost of $95.00. Those three discounted transactions would be credited to the Gift Card Asset account and debited to the Classroom Supplies expense account. This would reduce the Gift Card account balance to $0.00 and increase the expenses in the Classroom Supplies expense account by $95.00.
I hope I have clarified my thought process. Does this explanation make you see things any differently?

[NeilZ]

Neil,
Thank you for responding to my query. I’m not sure that I understand your reply or maybe I didn’t make the situation clear, so please bear with me while I try again.
When our preschool first purchases a 100.00 gift card for $95.00, they are not actually spending any money. They are exchanging a $95.00 Cash asset in their Checking Account for a $100 Gift Card asset costing $95.00. That is why I was proposing transferring $95.00 from their Checking asset account to a Gift Card asset account when the card is purchased. At this point they would still have the same total assets as they had before the card purchase, just in different forms. Then, let’s say they make three purchases of Classroom Supplies using the gift card. Two purchases of $25.00 each and one of $50.00. The actual (5%) discounted costs of the purchases would be two at $23.75 and one at $47.50 for a total cost of $95.00. Those three discounted transactions would be credited to the Gift Card Asset account and debited to the Classroom Supplies expense account. This would reduce the Gift Card account balance to $0.00 and increase the expenses in the Classroom Supplies expense account by $95.00.
I hope I have clarified my thought process. Does this explanation make you see things any differently?

I'm sorry, I don't see where you see a 'discount'. You buy the card at $95, but it has a value of $100, this is not a discount unless there is something you're not telling me. You have the purchasing power of $100.

Again, I would talk to an accountant who understand fund accounting (cash basis) directly.

[DBS_CBC]

Neil,
Thank you for responding to my query. I’m not sure that I understand your reply or maybe I didn’t make the situation clear, so please bear with me while I try again.
When our preschool first purchases a 100.00 gift card for $95.00, they are not actually spending any money. They are exchanging a $95.00 Cash asset in their Checking Account for a $100 Gift Card asset costing $95.00. That is why I was proposing transferring $95.00 from their Checking asset account to a Gift Card asset account when the card is purchased. At this point they would still have the same total assets as they had before the card purchase, just in different forms. Then, let’s say they make three purchases of Classroom Supplies using the gift card. Two purchases of $25.00 each and one of $50.00. The actual (5%) discounted costs of the purchases would be two at $23.75 and one at $47.50 for a total cost of $95.00. Those three discounted transactions would be credited to the Gift Card Asset account and debited to the Classroom Supplies expense account. This would reduce the Gift Card account balance to $0.00 and increase the expenses in the Classroom Supplies expense account by $95.00.
I hope I have clarified my thought process. Does this explanation make you see things any differently?

I'm sorry, I don't see where you see a 'discount'. You buy the card at $95, but it has a value of $100, this is not a discount unless there is something you're not telling me. You have the purchasing power of $100.

Again, I would talk to an accountant who understand fund accounting (cash basis) directly.

The discount is in the cost of the Gift Card. If you can purchase $100 in goods for the $95 cost of the card, you have essentially received a 5% discount on the purchased goods.

[NeilZ]

Neil,
Thank you for responding to my query. I’m not sure that I understand your reply or maybe I didn’t make the situation clear, so please bear with me while I try again.
When our preschool first purchases a 100.00 gift card for $95.00, they are not actually spending any money. They are exchanging a $95.00 Cash asset in their Checking Account for a $100 Gift Card asset costing $95.00. That is why I was proposing transferring $95.00 from their Checking asset account to a Gift Card asset account when the card is purchased. At this point they would still have the same total assets as they had before the card purchase, just in different forms. Then, let’s say they make three purchases of Classroom Supplies using the gift card. Two purchases of $25.00 each and one of $50.00. The actual (5%) discounted costs of the purchases would be two at $23.75 and one at $47.50 for a total cost of $95.00. Those three discounted transactions would be credited to the Gift Card Asset account and debited to the Classroom Supplies expense account. This would reduce the Gift Card account balance to $0.00 and increase the expenses in the Classroom Supplies expense account by $95.00.
I hope I have clarified my thought process. Does this explanation make you see things any differently?

I'm sorry, I don't see where you see a 'discount'. You buy the card at $95, but it has a value of $100, this is not a discount unless there is something you're not telling me. You have the purchasing power of $100.

Again, I would talk to an accountant who understand fund accounting (cash basis) directly.

The discount is in the cost of the Gift Card. If you can purchase $100 in goods for the $95 cost of the card, you have essentially received a 5% discount on the purchased goods.

I'm not sure an accountant would look at it that way.