# Accounting for Loyalty Programs, Vouchers and Gift Cards *When a customer buys loyalty points or a gift card, have you really earned revenue? And when do you recognize it? The answer changes the profit you report.* > **In short:** How to account for loyalty programs, vouchers and gift cards: cash received is a deferred liability, not revenue, recognized on redemption or expiry. - **URL:** https://www.snad.io/en/blog/muhasabat-baramij-walaa-qasaim-bitaqat-hadaya - **Arabic original:** https://www.snad.io/blog/muhasabat-baramij-walaa-qasaim-bitaqat-hadaya - **Category:** Guides — Core Accounting - **Tags:** Loyalty Programs, Gift Cards, Vouchers, Deferred Revenue, Loyalty Points, Retail Accounting, Liabilities - **Published:** 2026-06-26 - **Updated:** 2026-08-02 - **Publisher:** Snad (snad.io) Loyalty programs, vouchers and gift cards are powerful marketing tools, but they are also a common accounting trap. When a customer buys a gift card or earns points, you have taken cash without delivering anything yet. The rule is that the amount received is a liability (deferred revenue), not revenue, and it is recognized on redemption. Unredeemed balances (breakage) need their own treatment, and so does the effect on Value Added Tax (VAT). This guide explains the accounting with worked examples for retail and restaurants. ## Why loyalty and gift cards are an accounting problem When a customer buys a **SAR 500 gift card**, or earns **loyalty points** on a purchase, you have taken in cash but you **have not yet delivered any goods or services**. Booking that amount as revenue straight away inflates your profit by a sum you still owe the customer in the form of future goods. The correct treatment separates **the cash received** from **the revenue earned**, so you never recognize profit before you have delivered what you promised. ## The rule: cash received is a liability, not revenue The core principle is simple. Anything you collect in exchange for a promise of goods or services later is a **liability (deferred revenue)** on your balance sheet, not revenue in your income statement. - At the point of sale: cash increases, and the **gift card / loyalty point liability** increases with it. - At the point of redemption: the liability falls, and the matching revenue is recognized. Profit then lands in the period in which the customer actually consumes the value, not on the day the cash arrived. ## Accounting for gift cards and vouchers A gift card is the simplest case: - **On sale**: the full value is recorded as a deferred liability. - **On redemption**: the redeemed value moves out of the liability and into revenue, and the matching cost of goods sold is recorded against it. Promotional vouchers (SAR 50 off the next order) work differently. No cash changes hands, so they are treated as a reduction of revenue when they are used, not as a cash liability. ## Accounting for loyalty points Loyalty points are harder, because they are granted **inside** a sale. The modern rule splits the sale value between **the goods sold today** and **the points granted** — a deferred liability at the fair value of the points expected to be redeemed. Example: a SAR 100 sale grants points with an expected value of SAR 5. You recognize SAR 95 as revenue now, and SAR 5 as a loyalty liability that becomes revenue when the points are redeemed later. ## Unredeemed balances (breakage) A share of gift cards and points is **never redeemed** — this is known as **breakage**. Carrying it as a liability forever is not acceptable. - If you have a reliable historical pattern for the non-redemption rate, you recognize the breakage share as revenue **in proportion** to customers redeeming their balances. - Otherwise, you recognize it when the card expires or the obligation lapses in law. Ignoring breakage leaves your liabilities inflated with phantom balances that will never be spent. ## A worked example: a gift card and loyalty points A store sold a **SAR 300 gift card**: - On sale: cash 300, gift card liability 300 — **no revenue yet**. - The customer later spends SAR 200: liability −200, revenue +200, and cost of goods sold is recorded. - SAR 100 is left, and experience says 10% is never used: the breakage share is recognized gradually. The result: revenue shows up with each actual redemption, not in one lump on the day the card was sold. ## How they affect VAT VAT timing depends on the nature of the instrument: - **A multi-purpose gift card** (spendable on items carrying different tax rates): tax is usually due **on redemption** rather than when the card is sold, because the item is not yet known. - **A voucher for a specific item** with a known tax treatment: tax may be due on sale. Check how the Zakat, Tax and Customs Authority (ZATCA) rules apply to your own case. Confusing the two is a common source of discrepancies in the return. ## How Snad runs your loyalty programs and cards In Snad, issuing a gift card or granting a points balance is recorded automatically as a **deferred liability** rather than revenue, and every balance stays linked to its customer. On redemption at the point of sale, **the system moves the redeemed value from the liability into revenue** and records the cost of goods and its tax at the right moment. Your profit and your liabilities are stated correctly, with no complicated manual workings. ## Frequently asked questions ### Should I record the value of a gift card as revenue when I sell it? No. The amount received for a gift card is a liability (deferred revenue) on your balance sheet, because you have not delivered any goods yet. Revenue is recognized gradually, as the customer uses the card to buy. ### How are loyalty points granted with a sale accounted for? The sale value is split between the goods sold today and the points granted, at the fair value of the points expected to be redeemed. You recognize the goods portion as revenue immediately, and the points portion as a liability that becomes revenue when the points are redeemed later. ### What is breakage, and how do I treat it? Breakage is the value of gift cards or points that customers never use. You recognize it as revenue in proportion to customers redeeming their balances if you have a reliable historical pattern, or when the card expires. ### When is VAT due on gift cards? For a multi-purpose gift card, tax is usually due on redemption rather than on the sale of the card, because the item and its tax rate are not yet known. A voucher for a specific item with a known tax treatment may be taxed on sale. ### What is the accounting difference between a promotional voucher and a gift card? A gift card is cash received, recorded as a liability. A promotional voucher (a discount on the next order) involves no cash, and is treated as a reduction of revenue when it is used rather than as a cash liability. ### Why not recognize the full card value immediately and keep things simple? Because it inflates your profit by a sum you still owe the customer in the form of future goods, and distorts the result for the period. Separating cash received from revenue earned shows your real profit in the period you actually perform. --- ## About the publisher **Snad (سند)** — a private Saudi software company based in Riyadh, founded 2025. Legal form: Sole proprietorship. Commercial registration: 7038154642 VAT number: 310959226500003 Only official domain: snad.io > Snad is a private commercial business-management platform. It is not a > government body, not a bank, and not a government services portal, and it > is not affiliated with any government entity. Any site or app with a > similar name is unrelated to Snad.