Journal Entry for Non Cash Donation
Donation
This entry records the non-cash donation to a qualified charitable organization. The donation is made up of property, such as goods, services, or other assets, and is considered deductible by the Internal Revenue Service. To qualify for the deduction, the donation must be made to a qualified charitable organization.
In addition, the taxpayer must itemize the deduction and the amount of the deduction may not exceed 60% of the adjusted gross income. Donations to individuals, regardless of worthiness, are not deductible.
In order to take advantage of the tax benefit, the donor must obtain a receipt or written acknowledgment from the qualified charitable organization stating the amount of the donation and what was given. The donor must then present this receipt with the tax return when itemizing deductions.
Cash and Non-Cash Donation
Contributions of both money and non-monetary items may have implications for tax deductions. Cash donations are generally limited to 50% or 30% of an individual’s adjusted gross income in any one tax year. In addition, noncash donations can be more complex and require additional documentation to qualify for deduction.
| Donation | Deductibility | Limitations |
|---|---|---|
| Cash | 50% or 30% of Adjusted Gross Income | Annual Tax Year |
| Noncash | Varies | Consult Tax Professional |
Noncash donations must include a qualified appraisal, and the donor must provide the IRS with a detailed description of the item. Furthermore, excess contributions that exceed the annual allowable deduction can be carried over to the next tax year for up to five years. It is important to consult with a tax professional for additional information and to ensure that all deductions are properly documented.
Journal Entry for Non Cash Donation
A journal entry must be created to account for a donation of a non-monetary item. In this type of entry, the debit is recorded to an expense and the credit is recorded to an asset account that is not cash. This type of donation must be accounted for differently than a donation of cash.
The entry should include:
- Debit to an expense account, such as Donation Expense
- Credit to an asset account, such as Fixed Assets
- A description of the donated item
- The fair market value of the donated item at the time of donation
| Account | Debit | Credit |
| Donation Expense | XXX | |
| Assets | XXX |
The journal entry is used to document the receipt of the donated item and to record the associated expense. This is important for the organization to maintain accurate financial records. Additionally, it may be necessary for the organization to report the donation to the government or other regulatory body.
The journal entry also allows the organization to keep track of the fair market value of the donated item for tax purposes.
Conclusion
The value of non-cash donations should not be underestimated. Non-cash donations can take many forms, such as in-kind donations of goods or services, and can be of tremendous benefit to organizations and individuals alike.
When accounting for non-cash donations, it is important to keep accurate records and to record the appropriate journal entries. Such journal entries should include the date of the donation, the type of donation, and the fair market value of the donation.
By following these steps, organizations can ensure that their records remain accurate and that they can properly recognize the contributions of donors.