Questions: Accounting for Donations

car donatedQ: An organization recently got a donation of a Motor Vehicle purchased for $40,000. How does the receiving organization account for it?


A:
I would do the journal entry for this as follows:

Debit Motor vehicle (asset) $40,000
Credit Donation received (income) $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. See below for more questions about donations.

- Michael Celender


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Comments for Questions: Accounting for Donations

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Accounting for Donations
by: Anonymous

Donations in kind are not posted to cash. Only cash Donations are posted to Cash book.

Entry for Cash Donation

Dr. Cash book a/c
Cr. Donations a/c - Income a/c

Entry for Cash Donations to fund specific Assets

Dr. Asset A/c
Cr. Donation Reserve A/c - Deferred Income

Entry for Donations inkind of Capital Nature

Dr. Asset A/c
Cr. Donation a/c

Entry for donations in form of materials to be used in business operational activities

Dr. Expenditure item
Cr. Donation Received A/c - Income a/c

Donations recorded for a specific purpose, is it a capital receipt or a liability?
by: sagar

Donations recorded for a specific purpose is a capital receipt or a liability.

Donation
by: Bakht Mohammad Momand

Hello Dears,

I have problem anyone can help me.

1) Donation Received in the form of Cash for Specific purpose $5000 so how to record journal entries for it.

Note: I am confused that donation received is Income or Liabilities. If someone can help me in the problem leave comments or someone can help me I will leave all information below.
Thanks.

Bakht Mohammad Momand

A: Dr Cash on hand $5,000
Donation received (income) $5,000

- Michael
Accounting Basics for Students

Donation
by: Shabir Ahmed

When funds received for a specific purpose in the form of donation then it should be used for so it become a liability not income. The entry will be

Cash/bank (assets) dr
Donation (liability) cr

Why?
by: Anonymous

Why do you credit cash yet it is a donation?

There was no cash received in this transaction. The donation came in the form of the motor vehicle, not in the form of cash. The motor vehicle is debited.

- Michael Celender
Founder of Accounting Basics for Students

DONATION ENTRY
by: FAIZU RAHMAN.K.P

WE WILL TREAT THIS TRANSACTION AS BELOW:
MOTOR VEHICLE A/C DEBIT
CASH A/C CREDIT.
BECOZ WE WIL GIVE A NOMINAL VALUE FOR THIS TRANSACTION SAY FOR RS.1, OR RS.10 ONLY/-.
WE HAVE TO SHOW THIS FIXED ASSET IN OUR BOOKS OF ACCOUNT... THAT IS WHY WE SHOW THIS TRANSACTION LIKE THIS

Incorrect. See my journal entries above.

- Michael

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Recording of Inventories Donated


Q: How do we record inventories when donated in the periodic inventory method?

Comments for Recording of Inventories Donated

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Inventory donation
by: Anonymous

Q: How do we record inventories when donated in the periodic inventory method?

A: We do not need to record anything (meaning no entry or journal is needed) if the company is practicing periodic inventory method. This is because at the point when stock count is conducted, the stock donated are no longer available during the count, thus its cost has already been taken into account through the closing inventory value (lower of cost and NRV).

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Closing Entries for Non-Profit (Donating Remaining Items)

by Amy Hood
(Northbrook, Canada)

Q: I am trying to close accounts for a non-profit company. They have remaining t-shirts and food that they are donating to another charity (homeless shelters). How do I post closing entries?

A:
I would record this as follows:

Dr Donation (expense)
Cr T-shirts/food (asset)

Comments for Closing Entries for Non-Profit (Donating Remaining Items)

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Closing Balance for Donations (Income Account)
by: Anonymous

Hello everyone,
I have a question, I would like to close my financial year 2018 and start a new financial year 2019. My question is: what are the closing entries for 2018 and what are the opening entries for 2019 and I have a closing balance and would like to transfer it to the new year and the funds are as donations. Thanks.

Hi there,

Here is the original entry for recording the donations (which are counted as income):

Dr Bank Account
Cr Donations received (income)


All income accounts are closed off at the end of the year against an account to record the profit or loss (and for a non-profit it would be against an account to record something like "accumulated funds" or "accumulated gains" or similar terms to this).

The entry to close off the income account would be something like:

Dr Donations received (income)
Cr Accumulated Funds (Owner's Equity)


This entry would cancel out the donations received (income) account) and transfer those funds to an equity account which would be carried over into the next year.

Hope that helps!

Best,
Michael Celender
Founder of Accounting Basics for Students

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