Questions: 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 (asset) $40,000
Credit Donation received (income) $40,000
is the easy part here: the business is receiving an asset
, assets occur and increase on the left side so we debit
The contra entry, 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), 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 StudentsTutorials relating to this Topic:Return from Questions about Donations to Full Accounting Questions and Answers
Closing Entries for a Non-Profit
(Donating Remaining Items)
by Amy Hood
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.
Accounting Basics for Students