Accounting for Donations
Q: An organization recently got a donation of a Motor Vehicle purchased for $40,000. How does the receiving organization account for it?
I would do the journal entry for this as follows:Debit Motor vehicle $40,000
Credit Donation received $40,000
The debit is the easy part here: the business is receiving an asset, assets occur and increase on the left side so we credit it.
The credit described what occurred - we received a donation. This "donation received" account is actually an income account. Income occurs naturally on the right side as it means more for the owner (owner's equity) and therefore it's credited.
Since a donation is not usually the main or a regular source of income for a business, donations received would normally fall under "other income" in the income statement / profit and loss statement.
Hope that helps.
- Michael Celender
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