Recording inkind donations

dshatto · ‎July 13, 2024

I've read the article on recording unkind donations in QBO which has you create a sales receipt and a matching bill. While this vaguely answers my question I'm wondering.

1. Is this the best practice for tracking inkind donations?

2. What additional steps need to be taken when the amount received from a donation sale is less than the fair market value.

To be more specific our organization got inkind art donations from various artists for a silent auction. Each artist proved a fair market value amount for their work. None of the work brought FMB price but I need to know how to document the amount that was received.

Rainflurry

@dshatto

IMO, the QB article on in-kind asset donations is incorrect. When you receive donated items for an auction, they should be received on a sales receipt with an in-kind donation item mapped to an asset account on line 1 (as a negative amount) and an in-kind revenue item mapped to a revenue account on line 2 (as a positive amount), both at the estimated FMV at the time the donation was received. The two will offset resulting in a $0 sales receipt. That properly records the estimated FMV of the in-kind donation as an asset on your balance sheet and a corresponding amount as revenue.

After the auction, sell the item on a sales receipt for the auction sale price. When you do that, unless the item sold at the estimated FMV (unlikely), there will be a discrepancy between what the estimated FMV was at the time of the donation at what the actual FMV turned out to be based on the auction sale price so you need to make an adjustment for that. If the item sold for more than the estimated FMV, make a journal entry that debits the in-kind asset account and credits the in-kind revenue account. If the item sold for less than the estimated FMV, make a journal entry that debits the in-kind revenue account and credits the in-kind asset account. Now, you can issue a receipt to the artist for the amount of the FMV based on the actual FMV from the auction and not the estimated FMV at the time of the donation.

View solution in original post

Ethel_A

I'll share information about recording an In-kind donation in QuickBooks Online, @dshatto.

Yes, the procedure provided in the article which is to create a sales receipt and a matching bill is the best practice to record an in-kind donation.

Meanwhile, since the amount you received is below the fair market value, it is best to ask for assistance from your accountant. If you don't have an accountant, we can help you find one through this page: Find an accountant.

Here is an article for the detailed steps about recording an in-kind donation in QuickBooks Online: Set up and record in-kind donations in QuickBooks Online.

For future reference, you can read these articles to help you run and manage reports in QuickBooks Online:

Let me know if you have questions about recording in-kind donations received in QuickBooks Online. I'm always here to help. Have a great day.

Rainflurry

@dshatto

IMO, the QB article on in-kind asset donations is incorrect. When you receive donated items for an auction, they should be received on a sales receipt with an in-kind donation item mapped to an asset account on line 1 (as a negative amount) and an in-kind revenue item mapped to a revenue account on line 2 (as a positive amount), both at the estimated FMV at the time the donation was received. The two will offset resulting in a $0 sales receipt. That properly records the estimated FMV of the in-kind donation as an asset on your balance sheet and a corresponding amount as revenue.

After the auction, sell the item on a sales receipt for the auction sale price. When you do that, unless the item sold at the estimated FMV (unlikely), there will be a discrepancy between what the estimated FMV was at the time of the donation at what the actual FMV turned out to be based on the auction sale price so you need to make an adjustment for that. If the item sold for more than the estimated FMV, make a journal entry that debits the in-kind asset account and credits the in-kind revenue account. If the item sold for less than the estimated FMV, make a journal entry that debits the in-kind revenue account and credits the in-kind asset account. Now, you can issue a receipt to the artist for the amount of the FMV based on the actual FMV from the auction and not the estimated FMV at the time of the donation.

dshatto

Thanks Rainflurry. I think I'm tracking what you're saying. So there would be two sales receipts, one for the initial donation with the two entries (negative asset & positive revenue). Then when the item is sold there would be a second sales receipt along with an adjusting entry in the journal. Does that sound correct? This definitely makes more sense to me than the QB solution and covers my question.

Rainflurry

@dshatto

You nailed it. It's a bit involved but I don't know of a simpler method. Having to adjust the FMV is what makes it kinda tricky but it sounds like you have some accounting background so you shouldn't have any trouble.

dshatto

Ok, looking to do this but not sure I'm fully understanding the implementation. So here is where I'm running into issues.

Payment method - what would that be

Deposit to - Where should I be depositing to

As far as the negative (asset) and positive (revenue) I'm guessing that I would create a new product (e.g. Inkind Donation Item) and set both "I sell" and "I purchase" in order to assign them to the appropriate account (e.g. , Contributed Income: Inkind Donations and "Inkind Donation Assets") that correct?

dshatto

I forgot to include you in my recent question. Can you please take a look and reply to it. Thx

Rainflurry

@dshatto

'Payment method' (leave it blank) and 'Deposit To' don't matter because this is a $0 sales receipt. There's no payment or deposit. You need two separate service/non-inventory products for the sales receipt: one that is mapped to the in-kind donation asset account and one that is mapped to the in-kind donation revenue account. When you sell the item at the auction, use the in-kind donation item mapped to the asset account on the sales receipt. Perhaps you know this but NFPs should have a policy for what dollar amount is the threshold for items to be recorded as an asset. If someone donates an item for a silent auction that has a FMV of $50, it's probably not worth the administrative burden to record each donated item this way. You can just take the item in and sell it on a sales receipt as revenue at the auction.

Topics

Training

Community

Resources

Recording inkind donations