How to create an asset with a reduced value compared to my regular currency (dollars)
Adrien Monteleone
adrien.monteleone at gmail.com
Thu Dec 14 16:03:02 EST 2017
Adrian,
There’s no discount. Now or in the future. You’re going to buy items from that merchant in the future at their then current price, not less than that price.
There’s no rebate. You aren’t paying full price and getting money back.
You handed the merchant $430.
They handed you back $500.
The ‘card’ is not merchandise. It’s stored value of spendable currency.
The $70 doesn’t enter the picture as you spend the currency on the card, it entered the picture at the point you acquired the card. That is when it should be recorded.
You could turn around and ‘sell’ this card to someone else for $500 cash. That’s an even exchange of value. That means the card asset is valued at $500 because that is what is stored on it, not $430+$70 in ‘rebates’ or ‘discounts’. That means right now, you need to balance your $430 cash asset decrease with something, and that something is most likely a gift received.
You are having trouble finding how to best enter the transactions of future purchases because you’re trying to treat the extra $70 as a rebate or discount when it is not.
The question of taxability depends on jurisdiction. I could be wrong, but in the U.S. I think gifts up to a certain amount (in the 10’s of $1k’s) are non-taxable or exempt so $70 should not be an issue. But please check with a CPA.
The only other question you might want to consider is:
Is this a fungible card like a pre-paid VISA? or is it a gift card only usable at the merchant?
I don’t think the answer changes how to record the transaction(s) but it might shed light on why you view the card as containing a future discount instead of being extra stored value for which you did not pay. If it is a merchant only gift card, I see why you have this view, but if it is a pre-paid card usable anywhere there shouldn’t be any confusion.
I don’t think I could offer anything more on the subject.
Regards,
Adrien
> On Dec 12, 2017, at 9:01 AM, adrian <adrian at mitre.org> wrote:
>
> I'm tracking expenses so I know where my money goes, not in order to comply
> with regulations. It seems like if I were tracking these expenses because
> I was going to deduct them from something from business income for tax
> purposes then the best approach would be to isolate the business
> expenses---purchase the gift card with a business asset and then use the
> gift card only for business expenses and there's no ambiguity. If, in fact,
> you buy a discounted asset and then use it to buy some deductible things and
> some non-deductible things I don't have a clue what accounting law requires.
> Would you be allowed to spend $250 on deductible items, $250 on
> non-deductible items, and then the $70 becomes taxable income? Nontaxable
> income? To me the only strategy that seems reasonable for making sense of
> this is the very one I'm proposing, which would be equivalent to dividing
> the $70 proportionally into taxable and nontaxable income. As you say, the
> "gift" method is potentially problematic because you can't tell which $70 is
> "gift" and which isn't, so it seems like that makes accurate accounting
> impossible.
>
> To me it does not make any sense to identify discounts from merchants as
> "gifts". That's just not an accurate description of the situation. The
> merchant did not give me a "gift". The merchant gave me a discount. I
> suppose I have to agree that if I walked into a store where I never shop and
> the storekeeper handed me $70 there would be no other reasonable way to
> account for this. But this is not a situation that occurs. The merchant
> offered me the $70 only after I already paid $430. My thinking when I
> bought the gift card was specifically that I will acquire merchandise from
> this merchant (in the future) at a discount---not that I am getting a gift
> from the merchant. Just like I do not consider it a gift if I order an item
> at "50% off". This situation seems to me the same.
>
> Declaring the $70 to be a rebate from the merchant seems like a reasonable
> method. I just didn't like that so well because it captures this $70 in a
> meaningless "rebate" category that doesn't really tell me what actually
> happened. And as I said before, I wouldn't buy a Widget marked "50% off"
> for $100 and enter this as a $200 expense with a $100 (nontaxable) gift
> income.
>
>
>
>
> Adrien Monteleone wrote
>> I have to concur on the $70 gift idea.
>>
>> You paid $430 for a stored value card that has $500 on it.
>>
>> This is no different than if you handed a bank teller $430 in small bills
>> and they returned to you 5 one hundred dollar bills. (assuming the bank is
>> just fine with that)
>>
>> When you spend $100 from this card you aren’t really spending $86. You’re
>> spending $100.
>>
>> After you’ve spent $430, the next $70 on the card is a gift to you from
>> whomever sold you the card.
>>
>> But you can’t truly determine which $70 is gift and which isn’t.
>>
>> The easiest and likely most correct transaction is this:
>>
>> Dr. Assets:Cash $430
>> Dr. Income:Gift Received $70
>> Cr. Assets:Prepaid Card $500
>>
>> When you use the card, all transactions are just normal as if you’d paid
>> $500 for it.
>>
>> There is no discount. There is no rebate. You received a ‘gift’ of $70 in
>> the form of extra stored value on the card.
>>
>> Had you paid nothing and received a card with a $70 value, the transaction
>> would be:
>>
>> Dr. Income:Gift Received $70
>> Cr. Assets:Prepaid Card $70
>>
>> Note, the difference is NOT the $70. The difference is what you paid for
>> the extra value, in this case $430.
>>
>> Had you paid $430 for one card and the merchant gave you a separate card
>> with $70 value on it (that’s two cards totaling $500) then your entries
>> would be this:
>>
>> Dr. Assets:Cash $430
>> Cr. Assets:Prepaid Card $430
>>
>> Dr. Income:Gift Received $70
>> Cr. Assets:Prepaid Card $70
>>
>> There’s no fundamental difference in these two separate transactions than
>> the combined transaction above. They record the same net amounts in the
>> same places. The fact that all of this takes place on one card instead of
>> two, or that the gift is from a merchant instead of a family member or
>> friend does not change the nature of the transaction.
>>
>> You can record anything you want the way you want if this is just for you
>> to keep track of, but the goal should always be to use transactions to
>> show an accurate picture of what happened. What happened is NOT that you
>> saved money on future purchases. What happened is you received a gift of
>> $70 in the form of a stored value card.
>>
>> But by all means, ask a CPA if it’s that important to you.
>>
>> Regards,
>> Adrien
>>
>>> On Dec 7, 2017, at 3:46 PM, nvsoar <
>
>> nvsoar@
>
>> > wrote:
>>>
>>> On 12/06/17 12:44, adrian wrote:
>>>> Tommy Trussell wrote
>>>>>> Adrian:
>>>>>> In the case at hand I spent $430 on the gift card and when I buy
>>>>>> something
>>>>>> that costs $100, I'm really only spending $86. That's what makes
>>>>>> sense
>>>>>> to
>>>>>> me for how this ought to be counted. Since I don't know the category
>>>>>> of
>>>>>> the expense in advance, I can't just put in a $70 offset unless I put
>>>>>> it
>>>>>> as
>>>>>> "misc", in which case I lose track of some information about how I
>>>>>> allocated
>>>>>> my money.
>>>>>>
>>>>> I went back to your original question (remember that this is NOT a
>>>>> forum
>>>>> --
>>>>> it's an email list that you're viewing through Nabble)
>>>> Yeah, despite that I have been unable to actually subscribe to the list.
>>>> But your point was you wanted more context, I suppose.
>>>>
>>>>
>>>>>> I bought a $500 gift card for $430 this week. I would like to add
>>>>>> this to
>>>>>> gnucash as some kind of asset so that as I spend it, the correctly
>>>>>> scaled
>>>>>> amount gets transferred to the expense account I use. In other words,
>>>>>> if
>>>>>> I
>>>>>> spend $100 from this account it's really only $86.
>>>>>>
>>>>>> I tried to do this by creating a security fund and then using the
>>>>>> price
>>>>>> editor to set the price to 0.86. But when I insert a transaction from
>>>>>> the
>>>>>> new account to an expense account, it doesn't apply the 0.86 factor.
>>>>>> What
>>>>>> is the right way to do what I want to do?
>>>>>
>>>>> I think you have demonstrated the difficulty with what you're trying to
>>>>> do-- you're trying to make a rebate card a different KIND of currency,
>>>>> which in one sense, it is. HOWEVER every time you make a purchase from
>>>>> that
>>>>> card it will require a currency exchange, which adds a level of
>>>>> complexity
>>>>> and may not produce the result you want.
>>>>>
>>>>> I'm sure you could make it work, but in the end, it's a lot easier to
>>>>> just
>>>>> offset the $70 against the expenses. TECHNICALLY you don't get benefit
>>>>> of
>>>>> the full amount you spent on the card until you have completely
>>>>> depleted
>>>>> the value of the card, but that would be a PITA (sorry for the acronym
>>>>> --
>>>>> I
>>>>> mean "difficult").
>>>>>
>>>>> I think the real answer is to go back and think about what it is you
>>>>> want
>>>>> to achieve.
>>>> I'm not sure what exactly is unclear. I am thinking of the acquisition
>>>> of
>>>> this card not as a purchase, but as a shift of assets from one form to
>>>> another. So instead of $430 in the bank I now have a different asset,
>>>> namely $500 on the card. Yes, it's true, I don't benefit until I spend
>>>> the
>>>> money. But the same is true of money in the bank.
>>>>
>>>> But it's not really $500 on the card because I only spent $430 on it.
>>>> It is
>>>> exactly like a currency exchange, though it's not obvious to me why this
>>>> means my goal is a very complex one. It seems pretty simple to have an
>>>> exchange rate and have the card denominated in some currency, say the
>>>> Gifta,
>>>> that is equal to .86 dollars. When I buy something using the card I can
>>>> go
>>>> to the card's account and list the expenses in Giftas and they will be
>>>> automatically translated by the 0.86 factor. (I assume that if I made
>>>> an
>>>> account denominated in, say GBP, that I would be able to get that to
>>>> translate to the USD that I use for my regular accounts; after all, this
>>>> is
>>>> something that is important to many people.)
>>>>
>>>> Now actually I realized that the solution I was fiddling with can be
>>>> made to
>>>> work. As I mentioned before, I made an account and created a security
>>>> and
>>>> tried to set its price using the price editor. For some reason the
>>>> Price
>>>> Editor doesn't seem to do anything, but there is a column labeled
>>>> "Price" in
>>>> the account I made, and if I set this to 0.86 (which I have to do
>>>> manually
>>>> for every transaction, it seems) then things work as I was hoping. (And
>>>> I
>>>> notice that prices I enter in the ledger appear in the price editor even
>>>> though the reverse doesn't seem to be the case.) It would be even
>>>> nicer if
>>>> I could set the price once and have that same price stay in effect until
>>>> I
>>>> change it, rather than having to enter it again for each transaction
>>>> with
>>>> the default price being "1".
>>>>
>>>> Why do I care? It's just so that my accounting correctly tracks my
>>>> expenditures in different categories. I don't need to use accounting
>>>> software to do price comparisons, but if I want to know how much I spent
>>>> on
>>>> Widgets this year---and I buy some using the card---the number will be
>>>> inflated if I don't account for the discount.
>>>>
>>>>
>>>>
>>>>
>>>>
>>>> --
>>>> Sent from:
>>>> http://gnucash.1415818.n4.nabble.com/GnuCash-User-f1415819.html
>>> Hmmmm. Seems to me that you received a $70.00 gift along with the card.
>>> nvsoar
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