If your nonprofit does fundraising, 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.
The gift donated to your nonprofit should be recorded with the following journal entry:
|DB||1408 Donated items – inventory||$500||Asset|
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.
|CR||1408 Donated items – inventory||$500||Asset|
If the item was auctioned off for less than what I valued it at, the journal entry would look like this:
|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:
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.
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For Church/Nonprofit Leaders & Administrators
Some of the largest capital investments nonprofits and churches have is their investment in their property, furniture, vehicles and other equipment like computers. These are known as fixed assets and when it comes to managing, tracking and depreciating them, you want to be sure you are doing correctly. Sign up for the eBook below, 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