If your nonprofit does fundraising, you will probably receive items that can be used in a silent auction or sold in a raffle. But how do you treat these donations in your accounting?
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You will need to create many journal entries when accounting for these donated items to your nonprofit. Form 990 also requires itemized noncash contributions on Schedule M if your nonprofit checked yes on Part IV, lines 29 or 30.
Sample Journal Entries For Donations
Record the gift donated to your nonprofit like the following journal entry example:
| DB | 1408 Donated items – inventory | $500 | Asset |
| CR | 4005 Contributions | $500 | Income |
The value given to the item should be the estimated fair value of the donated item. You can create an adjusted journal entry based on the value the item was sold for since that is truly the value of the donation.
When the item is then auctioned off, the following journal entry example would be created if you sold the good for more than what you 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 you 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 your nonprofit will keep and use in the course of business, record this transaction as a DB to the asset account and a CR to your income account. It would then become part of your PP&E (Property, Plant and Equipment) and needs to be depreciated accordingly.
Many nonprofits skip inventorying the donated items if the goods are donated and sold within the same fiscal year, so don’t forget to record items when you receive them.
Noncash Contribution Receipts
It’s important to implement an internal policy for donated items as well as create a donor receipt method for noncash contributions. When accounting for donations to nonprofit organizations, the value of the donation 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 for Charitable Contributions. Check out these examples of noncash contribution receipts from Free Church Accounting and Brighthub.
Learn How To Manage Fixed Assets (Free eBook)
When it comes to managing, tracking, and depreciating fixed assets, it is extremely important to make sure you are doing it correctly.
Sign up below for the free eBook, which will guide you through what a fixed asset is, and how you and your organization can track, manage, and depreciate it throughout the course of its useful life.
It will teach you how to:
- Calculate and compare different methods of depreciation
- Allocate fixed asset costs according to GAAP
- Maintain a record of depreciation for each fixed asset
Good luck, and remember this article is not meant to be a substitute for professional services. Always consult a CPA or trusted professional when seeking tax or accounting advice.
9 comments
what if the non profit making organizations donates to the charity. how do you account for that
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!
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?
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!
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?
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! 😉
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?
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.
[…] also receive in-kind gifts that may be sold for silent auction items or put into use. You can read this Academy lesson to see how to account for these in-kind gifts in your […]