How to Account for Donated Auction Items

The latest view on not-for-profit accounting issues

Believe it or not, it’s already the holiday season where not only do you begin thinking about what your loved ones want as gifts but also how to properly pull off your annual fundraising gala. Many not-for-profit events not only have entertainment, a call to action, and great food, but also have silent or live auctions.

Luckily for most not-for-profit organizations, we have a very generous population in the Phoenix Valley and most items up for auction are donated to the organization. Although this is very beneficial to the organization, it is not always the easiest thing to account for in our general ledger.

So how do we record these donated items? When an item is received to be used in an auction benefitting the organization, it should first be recognized as an asset and contribution revenue. For example, if a company donates a luxury cruise in Alaska valued at $4,000 to be part of the live auction at your event, you should initially recognize the item as follows:

Donated auction items (asset account) $4,000
Contribution revenue ($4,000)

When the item is sold, there are two different ways the transaction may need to be handled. If it is sold at a value higher than originally donated at, the amount of cash above the value is accounted for as additional contribution revenue. If the Alaskan cruise is sold for $5,000, you should recognize the sale as follows:

Cash $5,000
Donated auction items (asset account) ($4,000)
Contribution revenue ($1,000)

However, in the unfortunate event that the buyer gets a “steal” and pays less than the donated value, you would recognize the difference between the asset value and incoming cash as a debit to contribution revenue. If the Alaskan cruise is sold for $3,000, you should recognize the sale as follows:

Cash $3,000
Contribution revenue $1,000
Donated auction items (asset account) ($4,000)

In review of the above entries, notice that the maximum amount of contribution revenue you should report is the cash received for the donated item. Therefore, it may seem easiest to just report the ending revenue and cash. However, if the donation and event don’t occur in the same annual period, entry 1 must be entered. If both occur in the same annual period, you may be able to record the cash and revenue after the event as the only entry.

Unfortunately, even if the donation and sale occur in the same period, you will still need to track the fair market value of all donated items not only for internal purposes, but also for Schedule G of your Form 990. A list of all donated items with their fair market value, amount each sold for, and supporting documentation will make your auditor and tax preparer very happy.

By Samantha E. Mahlen, CPA