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.
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
DR 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 few examples of noncash contribution receipts:
Avondale Pattillo United Methodist Church
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.
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