I’m almost finished with Groupon articles! I’ve got two more, then, I think we’re done. I’ve been writing these articles, because there is a lot of confusion surrounding the accounting for Groupon certificates and how to enter them in QuickBooks. The resources for learning about these areas are poor (and often contradictory), but that’s nothing compared with the confusing, and often downright incorrect, information that has been written about the tax implications of using Groupon! I hope these articles will help accountants, bookkeepers and restaurant owners set up their books and account for these transactions properly.
Today’s article explains how to account for a restaurant’s Groupon transactions in QuickBooks. Previous articles have covered the POS system set up for Groupon transactions, accounting for Groupon transactions (in general), and the very important tax implications of using Groupon in a restaurant.
As we know, from the accounting article, there are three types of Groupon transactions that need to be entered into QuickBooks:
- Initial setup and distribution of the Groupon certificates
- Daily redemptions of certificates
- Expiry of unused certificates
The easiest way to record the issuance of certificates is with a journal entry. In this example, 100 certificates were issued with a face value of $100 each. The customer paid $55 to Groupon (to get a $45 discount at the restaurant). Groupon takes 50% of the $55/certificate, and charges HST on their fee. Groupon cuts a cheque to the restaurant for the remaining proceeds from the sale of the certificates. Here’s the entry to set everything up:
If you don’t understand the accounting entry, please refer to the article about how to account for Groupon. This entry sets up the liability for Groupon certificates, the deferred promotional expense (or deferred sales discounts, if you like), the promotional expense (Groupon fee), records the HST (sales tax) on the Groupon fee, and deposits the cheque from Groupon. One simple entry does it all!
I hope you’re already using a sales receipt for entering the daily restaurant sales. While you could use a journal entry, I find the sales receipt method to be the easiest, and most logical, way to enter daily sales summaries. Here’s a sample redemption:
You need to create three new items. The GrouponDiscount (discount type) item posts to the Promotional Expense – Groupon account. In this example, it is the difference between the face value and the promotional value (paid to Groupon by the customer) – $100 less $55 equals $45. In Canada (and California), this discount is coded as taxable (the “H” code), so that the discount amount will be deducted from the other taxable items before calculating the tax.
The GrouponDeferred item is an other charge item that posts to the Deferred Promotional Expenses account. As each certificate is redeemed, a portion of the deferred expense is transferred to the actual expense account. Note that this line is coded as exempt from tax (“E”).
Finally, a GrouponPayment item is used to post to the Liability for Groupon Coupons account. This line entry reduces the liability for outstanding certificates by the face amount of each certificate redeemed. Note that this, too, is not taxable (it’s like cash). Note also, the net of the GrouponPayment and the GrouponDeferred items is equal to the amount that the customer paid for the certificate.
In Canada there is a 13% HST tax on the promotional value of the certificate. In this case, the promotional value is $55. Here, I’m assuming the customer paid the tax with cash (which could be posted to the account of your liking).
Many Groupon certificates expire after a certain date. In our example, I’m assuming that was six months after the date of issue. At that point, the restaurant ceases to have any liability to the certificate holders (though Groupon may refund a portion). Let’s assume that 10 certificates were never used. We need an entry to clean up the accounts. The easiest way to do this is to make a journal entry, as follows:
At the expiry date, the liability for outstanding certificates is $1,000. The balance in the Deferred Promotional Expense account is $450. We have to eliminate the balances in these two accounts. The balancing item in the journal entry is to the Promotional Expense – Groupon account. Note that it is a credit to an expense account, which represents a recovery of the promotional expense related to this batch of Groupon certificates.
The elimination of the Deferred Promotional Expenses represents the $45 portion of each certificate, and the recovery of promotional expenses represents the $55 portion. Neither of these amounts will have to be “paid” by the restaurant with food and drink.
That’s all there is to it. My final article on Groupon will examine whether it is a worthwhile promotion for restaurants, and if so, under which conditions.