How do I record non-cash donations?

Dear Trudy,

We have a parent who is donating a 2 night stay at a hotel with breakfast to our program. We are going to put that and a few things (lotion, candles, etc,) into a basket and sell raffle tickets for a fundraiser. The stuff we buy, I know what to do with, but how do I record the donation? Do I have to?  Just want to be sure that I do this correctly. 

Thanks Trudy!

Many small nonprofits ignore the issues you discussed, but from an IRS reporting standpoint you asked all the right question.  Essentially you are asking "How do I record non-cash donations to our organization?”

In effect there were actually three parts to your transaction:

1. Someone donated to your organization
2. You used the donation to raise funds
3. Someone gave you actual cash in a fundraiser

So the IRS would like you to show under “Donations” the value of the 2 night stay with breakfast, under “Fundraising” they would like you to show the funds received from auctioning off the 2 night stay AND the cost of that 2 night stay as a fundraising cost.

Below is an example:

Sample for 2 night stay valued at $500 eventually auctioned off for $600

	Donations	Fundraising
2 night stay donated	500
Auction Proceeds Received		600
2 night stay used		-500
Allocated as follows	500	100

In the end you received $600 but in the eyes of the IRS you received a donation of $500 and a fundraising profit of $100.

We suggest recording this in your Treasurer's Briefcase account by creating a “fake” checking account called Non-cash Activity and record all non-cash activity in this account.  In our 2 Night Stay example,  when the donation is made you should record an Other In of $500 and categorize to Donations,  when the gift is sold at auction, you will show an Other Out and categorize as a cost of the fundraiser in my example “Auction”.  

It’s important to note doing it this way memorializes the activity for your organization so you have a record for years to come.  Also if someone donates a non-cash item and it isn’t used keep in mind it will actually show up on your treasurer's report as a balance in the Non-cash Activity account.  Recording it in this way ensures that you will be reminded it is still available to be used.