Is the value of a donation the same for the individual who donates it as the value received to the nonprofit? Often, the answer is no to this question. Let’s look at a common donation scenario for nonprofits and break it down into bite-sized pieces.
My nonprofit received a donated item appraised at $5,000 from Donor Allan. We then sold the item at a silent auction for $8,000. Does the donor receive a receipt for $5,000 or $10,000? And how do we book this entry?
These are basically three unrelated (but terribly related) transactions. They key is to think of each role as separate. Here you have three roles; Donor Allan, Nonprofit, and Donor Bob (or Purchaser).
Donor Receipt for Donor Allan:
The Donor Allan would receive a contribution receipt for the value of the appraised donated item $5,000.
Donor Receipt for Donor Bob:
The item is auctioned for $8,000. Donor Bob (the purchaser) receives a contribution receipt for $3,000 ($8,000 purchase price less $5,000 value)
Accounting Entry for contributions:
The nonprofit creates the following entry:
DB Cash $8,000 Asset
CR Contributions $8,000 Income
If the appraised item were recorded in the nonprofit’s inventory at the time it was received, there would need to be two steps involved in the recording of the contributions:
DB Inventory $5,000
CR Contributions $5,000
(Value of appraised item at time of donation)
DB Cash $8,000
CR Inventory $5,000
CR Contributions $3,000
(Notice here, once the item is sold, inventory is cleared out and the contributions income is increased to reflect the total amount received for the appraised item).
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.aplossoftware.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.