How To Account For Donated Items


If your nonprofit does fund raising, often you will receive items that can be used in a silent auction or sold in a raffle. This transaction will create many journal entries. Form 990 also requires “Noncash Contributions” to be itemized on Schedule M if your nonprofit checked yes on Part IV, lines 29 or 30.

nonprofit auction items

Photo by Grand Canyon NPS / CC BY

 

The gift donated to your nonprofit should be recorded with the following journal entry:

DB 1408 Donated items – inventory $500 Asset
CR 4005 Contributions $500 Income

 

The value given to the item should the estimated fair value of the donated item (a adjusting journal entry can be made based on the value the item was sold for because that is truly the value of the donation).

When the item is then auctioned off, the following journal entry would be made if I sold the good for MORE than what I valued it at the time of donation.

DB 1010 Cash $800 Asset
CR 1408 Donated items – inventory $500 Asset
CR 4005 Contributions $300 Income

 

If the item was auctioned off for less than what I valued it at, the journal entry would look like this:

DB 1010 Cash $400
DB 4005 Contributions $100
CR 1408 Donated items – inventory $500

 

In summary, the cash entry is always for the amount of cash received. The inventory needs to be debited (DB) and credited (CR) for the same amount. The difference goes to the contributions account (DB to decrease and CR to increase).

If you receive a donation for assets that your nonprofit will be keeping and using in the course of business, this transaction would be recorded as a DB to the asset account and a CR to the your income account. It would then become part of your PP&E (Property, Plant and Equipment) and need to be depreciated accordingly.

Many nonprofits skip inventorying the donated items if the donated goods are donated and sold within the same fiscal year. It’s also important to come up with an internal policy for donated items and create a donor receipt method for noncash contributions.

We found a couple examples of noncash contribution receipts:

– Free Church Accounting
– Brighthub: Example of non-cash donation receipt
(scroll down to An Overview of IRS Requirements)

The value of the contribution can be determined several different ways It is normally up to the donor to determine the value of their gift and the benefactor to determine the value received. These amounts are often different and should be treated as two unrelated transactions. The IRS offers Publication 561 to help you determine the value of donated property and Publication 526 Charitable Contributions.

Our nonprofit accounting software blog discusses accounting, tax, and specific Aplos functionality issues. Scroll through the categories and click the topic that you are interested in. All blogs are the property of the author. ©Permission granted to post blog in its entirety with credit and link to www.aplos.com. Good luck and remember this blog is not meant to be a substitute for professional services, just a helpful resource. Always consult a CPA or trusted professional if you seek tax or accounting advice.

P.S. — Are you using QuickBooks? You should try our software. We designed Aplos Accounting specifically for nonprofits and faith-based organizations like yours!

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Alex is the Product Manager for Aplos; he works with the development team to make changes and enhancements to the software, and trains employees on any new additions. A patient teacher, Alex loves to break down IT and financial concepts to make them easy to understand and to apply to real life situations. In his lessons on Aplos Academy, he also draws on his degree in Business Administration and Management and experience serving at his own church.

9 thoughts on “How To Account For Donated Items

    1. Hi, Luckson. If a nonprofit donates to another organization they will want to record it as an expense… but check with a CPA to make sure there are no special rules there!

  1. I have a lawn care business. It is my only income. I make donations throughout the year to the Goodwill. How do account for those donations as it pertains to debits, credits, or just an entry with no effect on the income/revenue balances?

    1. Hi, Doug! If you’re using Aplos to track your lawn care business, and the donations that you make are from the income you’re recording for the business, then you can record that donation that you’re making as an expense. You can create an expense account such as Goodwill Donations, then record the donation as a payment in your register.

      Hope that helps!

  2. The church has been asked to receive a donation of a vehicle with the understanding that the church would then pass the donated vehicle onto a congregate. This person has requested to handle the donation this way so they can receive the tax donation.

    Legal? How do we handle within QuickBooks? What tax forms do I use?

    1. Hi, M!

      Great question. For this sort of thing, we would advise you to discuss it with a licensed CPA as we typically stay away from answering questions to do with taxes.

      Also, since we’re a direct competitor of QuickBooks, we’d suggest you use our accounting software for your church! 😉

  3. Hello, I have a for profit retail business. I have new product inventory that was given to me as a bonus. There is a FMV on the invoice. I sold products for less than FMV. Would I record the same as in this illustration? Or would it be different for a for profit?

    1. Hi Jack,

      It’s going to work similarly, but there will most likely be different accounts at play in your particular situation. To figure out which accounts those are, we would recommend contacting a CPA.

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