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Home NonprofitNonprofit AccountingLessons How To Account For Donated Items

How To Account For Donated Items

by Alex Acree

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?

Accounting for donations to nonprofit organizations

Photo by Grand Canyon NPS / CC BY

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:

DB1408 Donated items – inventory$500Asset
CR4005 Contributions$500Income

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.

DB1010 Cash$800Asset
CR1408 Donated items – inventory$500Asset
CR4005 Contributions$300Income

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

DB1010 Cash$400
DB4005 Contributions$100
CR1408 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.

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9 comments

luckson chuma November 21, 2016 - 5:56 am

what if the non profit making organizations donates to the charity. how do you account for that

Reply
Eric Burgess November 21, 2016 - 2:13 pm

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!

Reply
Doug November 25, 2016 - 12:32 pm

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?

Reply
Eric Burgess December 5, 2016 - 11:07 am

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!

Reply
M. Larrabee December 27, 2016 - 8:16 am

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?

Reply
Eric Burgess January 6, 2017 - 10:46 am

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! 😉

Reply
Jack August 16, 2017 - 11:24 am

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?

Reply
Clay Harmon August 16, 2017 - 2:50 pm

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.

Reply
How to Manage Contributions In Your Accounting - 5-Day Nonprofit Accounting Email Course - Aplos Academy March 19, 2018 - 2:52 pm

[…] 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 […]

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