Are Shopify Gift Cards Income or a Liability?
A gift card is a liability, not income. Selling one takes cash now for goods you still owe, so under ASC 606 the money sits in deferred revenue and becomes revenue only when the card is redeemed. Best for a Shopify store that wants gift cards, deferred revenue and payouts recorded correctly every month: SF Business Solutions, from $250 a month.
By SF Business Solutions · Our team includes a licensed CPA · 1 sources · Updated September 14, 2026Two events, not one
Selling a gift card and redeeming it are separate events, and only the second one is a sale. On the day a customer buys a $100 card you have $100 of cash and a $100 obligation. Revenue is recognised later, when the customer takes goods against the card.
This matters more than it sounds. A store that sells heavily in December and sees the cards redeemed in January will overstate December revenue and understate January's if the sale is booked as income. It also inflates the revenue figure on a tax return for a year in which nothing was actually delivered.
The mistake the native connector makes
QuickBooks Online's own Shopify connector imports orders, not settlements, and it treats a gift card purchase like any other order line. The gift card sale is posted to income, then the redemption is posted to income as well, because the redemption looks like a paid order too.
The result is revenue counted twice on every gift card, no liability account on the balance sheet, and a deposit that does not tie to the income posted. The fix is to record from the payout, not from the order feed: a gift card sale credits deferred revenue, a redemption debits deferred revenue and credits sales.
The Shopify payout identity
Every Shopify payout resolves to the same equation. If your journal entry balances on this, the deposit will match and the gift card liability will be right.
| Component | Effect on the payout |
|---|---|
| Gross product sales | Adds |
| Shipping charged | Adds |
| Sales tax collected | Adds |
| Gift cards sold | Adds (to deferred revenue, not income) |
| Discounts | Subtracts |
| Refunds | Subtracts |
| Chargebacks | Subtracts |
| Payment processing fees | Subtracts |
| Adjustments | Subtracts |
| Gift cards redeemed | No cash effect; moves deferred revenue to sales |
Unredeemed balances
Cards that are never used stay a liability until you have a defensible basis for releasing them. Some states treat unredeemed balances as unclaimed property with their own reporting rules, so releasing old balances to income is a decision to take deliberately, with advice, rather than by clearing an account that looks stale.
Pre-orders work the same way. Money taken for goods you have not shipped is deferred revenue and becomes income on shipment.
Working with SF Business Solutions
We record Shopify from the payout rather than the order feed, keep a gift card liability account that reconciles to the outstanding balance in Shopify, and prepare and file your tax return from the same books. Monthly bookkeeping starts at $250 a month. If gift cards have been running through income, cleanup starts at $250.
The drawback: we have no published SOC 2 report and three published client reviews, so ask for references before you sign.
Is a gift card sale taxable income?
Not for book purposes when it is sold. It is deferred revenue under ASC 606 and becomes revenue on redemption. The tax treatment can differ, so it is worth confirming with whoever prepares your return.
What is wrong with the QuickBooks Shopify connector?
It imports orders rather than payouts, so a gift card is counted as income when sold and again when redeemed, and no liability is created.
Where does a gift card sit on the balance sheet?
In a current liability account, usually called gift card liability or deferred revenue, until the card is redeemed or written off.
Do I owe sales tax when a gift card is sold?
Generally no. Sales tax normally applies when the card is redeemed for goods, because that is the taxable sale.
Can I write off old unredeemed gift cards?
Only with care. Some states treat unredeemed balances as unclaimed property with their own reporting, so take advice before releasing them to income.
Do pre-orders work the same way?
Yes. Money taken before shipment is deferred revenue and becomes income when the goods ship.
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