We have fabricated and supplied a physical product to a charity. The charity is going to pay a preset portion + HST. The remaining balance + HST is to be treated as an In-Kind donation. Here are my questions:
1) For a company that's making an In-Kind donation to a charity, what type of G/L account should I use? Should I use the current "Donations" G/L account and set up an Item called "In-Kind Donations" that links to that G/L account? Or should I set up an new G/L account called "Donations In-Kind"? What type of item should I use?
2) How do I treat the HST related to In-Kind Donation? Do I record this HST or is the In-Kind donation portion tax exempt?
The Charity has come back asking that the invoice show the following:
a. the amount
b. the billable amount, and:
c. the donation In-Kind portion. With the donation portion identified as materials only and not labour.
I haven't been able to find any examples
Thanks for joining us! I know how important it is to make sure these things are recorded correctly and I'm here to help. Since there isn't a built-in feature for this, it'll take a bit of extra legwork to get all the moving parts going.
I responded to someone else using QuickBooks Desktop who was also having this issue just a short while ago. I'd like to direct you to the response I gave them as I provided a number of articles and links, as well as instructions on how to connect with an accountant when you need an extra hand. Check it out here: Gifts in Kind for Charities
Since you're looking to recording an in-kind donation to a charity and your business isn't the charity in question, the articles linked, in particular QuickBooks Online Set up and record in-kind donations may need some tweaks. Keep in mind that although it's a QuickBooks Online article, you should be able to take the same principles and work with them in QuickBooks Desktop. For the exact setup of the chart of accounts, sales taxes, and items, it's best to refer to an accountant or bookkeeper for guidance as they'll have the know-how for choosing which kind of set up you need. As a tech support agent, I cannot advise on these things.
Looking at your question about recording the invoice with a billable item and another item, here's generally what you would do. It sounds like you'll have some purchases from other vendors that you'll then be billing to the charity. You would still enter that bill as usual, marking the item or expense as billable to the charity.
Once you've done that, you can then create an invoice or sales receipt for the charity and add that billable item. The program should prompt you with a window to add billable costs and/or hours, but if it doesn't, you can select Add Time/Costs from the Main menu toolbar on the transaction.
Afterward, you can add the in-kind item or service. If you haven't set it up, this would done by going to Lists then Item List. On that window, you'd click New, then choose the appropriate option. In the item setup, you'd choose the income account created earlier in the setup process. The total amount between the billable amount and in-kind portion will reflect in the invoice's total.
Where to deposit the funds from the payment received on the invoice or sales receipt may be where things get a bit tricky. Based on what you've got here, it sounds like a portion of it may still be charged to the charity. If that's the case, you may be able to record the transaction as an invoice with two partial payments since you can't separate a payment in the deposits screen to allocate different portions to separate accounts. In this sort of scenario, the first partial payment would be for the amount the charity is actually paying, whereas the second would cover the in-kind cost. In doing this, you can record the paid portion to the bank account of your choice, whereas the in-kind portion would go to the clearing account mentioned in the set up article.
For the charity's in-kind portion to your business, you'd still follow the process of setting up the charity as a vendor (and slightly changing the name as the article mentions since QuickBooks only lets you use the name once), then filling out the rest of the details.
That should get you started. Because of the complexity of the situation, I still urge you to consider an accountant or bookkeeper to properly work this out. One that knows QuickBooks Desktop would be ideal to have on your side in these situations. Once again, the other thread I linked initial contains details about how to get in touch with one.
Wishing you all the best! Let me know if you have more questions.
After reading LauraAB's response, I called the HST ruling # [removed]. Here is my solution:
1. There is no HST chargable/collectable for an In-kind donation that a company gives to a charity. Said another way, HST is chargable only on the amount due from charity.
2. I created a Discount item named "In-Kind". The G/L expense account is Donations, sales tax code for HST.
3. I created an invoice (This is just example numbers) to the charity:
ITEM DESCRIPTION AMOUNT
XXX Fabricate XXX $3,000.00
YYY YYY 250.00
Subtotal Subtotal $3,250.00 (Retail Value)
In-Kind In-kind Donation, Materials Only (1,800.00)
Subtotal Subtotal $1,450.00
Balance Due $1,638.50
The invoice provided to the charity shows the invoices full amount and the In-Kind amount. The charity is them able to provide a donation receipt for $1,800.00 and pays the balance owing of $1,638.50