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 debit it.

The contra entry, the credit, described what occurred - we received a donation.

accounting equation income profit

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), so 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).

Hope that helps. See below for more questions and answers about donations, including for non-profits.

- Michael Celender
Accounting Basics for Students


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Comments for Questions: Accounting for Donations

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Stock-Donated & Realized Gains
by: Anonymous

We received a stock donation and sold it almost immediately. I'm trying to understand the transactions and how to record it.

Under activity > Misc.& Corporate Actions it reads:

Transaction: Received from you,
Date:09/19
Description: Visa Inc Com CL A Trans value 20,670.10
Qty. 115
Amount 0.00
Total Cost 0.00
Realized Gain (Loss) 0.00

Date 09/22
Activity> Core Fund Activity
Transaction You Bought
Description: Govt. Mmkt Capital Reserves @1
Qty:20,586.85
Amount (20,586.85)

Activity>Purchases, Sales, and Redemptions
Desc: Visa Inc Com CL A @ 179.64
LT Gain 18,019.81
Qty:(115)
Amount 20,586.85

Hi there,

I'm not sure about the figures above, they are pretty confusing. But I can tell you the general entries that are made.

Let's say you value the donated inventory at $15,000 and you sell them for $20,000. When you receive the donated stock you can record:

Dr Inventory $15,000
Cr Donation (income) $15,000

And when the sale is made:

Dr Bank $20,000
Cr Inventory $15,000
Cr Trading account (income) $5,000

So as you can see the initial donation is recorded as an income of $15,000 and then there's a profit of $5,000 recorded for when it's sold for $20,000.

Hope that helps!

Best,
Michael
Founder of Accounting Basics for Students
Journal Entry - Company makes a Donation
by: Anonymous

How about if the company made the donation instead of being the recipient of the donation? For example, Company A donated $250 to charity. What would the journal entry for this transaction be?

A: I would record the donation as an expense.

The entry would be as follows:

Dr Donation (expense) $250
Cr Bank/cash (asset) $250

Hope that helps!

Best,
Michael C.
Founder of Accounting Basics for Students
Donated Asset - Expenses Incurred
by: Anonymous

How about if there were expenses incurred? Am I going to deduct it to donated capital?

If the expenses are specifically connected to the donated asset and ensure that it is available and can be used by the organization, then you would increase the value of the asset donated by the amount of those expenses. For example, transport costs to get the van to your premises would be added to the van's value.

However, if the expenses are not really connected to the asset and are not necessary to having the asset available and in use for your business, then treat it as a separate line item expense in your records.

Repair and maintenance costs are generally treated as a separate line item and not included as part of the value of the asset.

Best,
Michael Celender
Founder of accounting-basics-for-students.com
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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Closing Entries for a 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)

That way you are recording the assets you're giving away as a loss or expense.

Michael C.
Accounting Basics for Students

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

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Donations to and by a Non-Profit Organization
by: Shoaib Aslam

Sir I have a question about a donation.

A non-profit organization received some cash as a donation a few years ago. The organization used those funds to purchase land and constructed a hospital on that land. Now this non-profit organization has donated that hospital to another party this year.

What is the accounting treatment at the time of receiving the donation and at the time of making the donations. Kindly solve it with the reference of IFRS and send it to my email address given below.
Thank You Sir.
Name: Shoaib Aslam
Email: [email protected]

Hi Shoaib,

The donation received is a form of income for the non-profit. The cash donated is an asset. So here's the entry I would do:

Dr Cash (asset)
Cr Donation received (income)

This is to show the asset increases and the income is recorded.

Later, you purchase land, so you record:

Dr Land (asset)
Cr Cash (asset)

When the organization donates the hospital, they have an expense or loss. I would record the following:

Dr Donation made (expense or loss)
Cr Land and buildings (asset)

See the following full lessons on these kinds of journal entries:
- Journal entry for purchasing an asset.
- Journal entry for receiving income in cash.
- Journal entry for basic expenses.

Hope that helps!

Best,
Michael C.
Founder of Accounting Basics for Students
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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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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Donating Goods
by: Anonymous

If the company give goods as donation where should I record the transaction in the journal?

You can record it as follows (perpetual inventory system):

Dr Donation (expense)
Cr Inventory (asset)

You would record this in the general journal.

Best,
Michael C.
Accounting Basics for Students
Inventory donation
by: Anonymous

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

A: In my view we don't need to record any entry at the time of receiving the donated inventory if the company is using the periodic inventory method. This is because using the periodic method, the "Inventory" account is only updated when we do a physical stock count.

If you compare this to the entry for inventory purchases, here we always adjust the "Purchases" account during the year (between stock counts) and later cancel this temporary account into "Cost of Sales."

However, when receiving a donation we can't use the "Purchases" account because it's not a purchase.

So in my view we would only record an entry for the donated inventory later when a stock count is done to reflect the new value of inventory at that time. I.e. at the end of the period.

Bear in mind that if the donated stock is part of some contract with a customer, then you may need to apply IFRS 15.

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