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Recording donation made to a local charity in balance sheet

 
 
masimo
 
Reply Mon 17 Oct, 2016 04:11 am
Hello,

I am a bit lost on this one. How would I record this:

my company donated items worth 23$ to a local cause/charity. It was spent from company money but the transaction/spending wasn't recorded anywhere. We discovered it now because the local charity sent us a thank you card. Now i need to record it. First, I think it should go in the income statement as an expense, right? Where does it go in the balance sheet? Asset or liability? I am thinking it shouldn't have a place in the balance sheet at all since it is neither an asset nor debt but am been told it should be reflected there. Am I missing something?

Sorry i am newbie to accounting.
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Type: Question • Score: 3 • Views: 4,069 • Replies: 11
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Sturgis
 
  1  
Reply Mon 17 Oct, 2016 01:16 pm
Whereas the contribution/donation is not paid out as a debt, it clearly does not go in the assets column. It reduces total equity and therefore land in the debits column, similar to known expenses, such as rent, electricity, telephones, etc. etc.
roger
 
  2  
Reply Mon 17 Oct, 2016 01:35 pm
@masimo,
You never, ever record anything on the Balance Sheet. Period. Nor is it recorded on the Income Statement.

Record the transactions as a correcting entry in the Cash Disbursements Journal. Debt to Cash, credit to an expense account named Donations.

InfraBlue
 
  2  
Reply Mon 17 Oct, 2016 01:50 pm
@roger,
Wouldn't expense accounts be debits?
roger
 
  1  
Reply Mon 17 Oct, 2016 03:05 pm
@InfraBlue,
You are absolutely right. My error.
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masimo
 
  1  
Reply Mon 17 Oct, 2016 03:40 pm
@Sturgis,
So, essentially it is a liability? I cant get my head around that idea so far. The template in use have assets,liabilities and equity and for sure, it is closer to liability. Or it should be like "charge the debit account?"
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PUNKEY
 
  1  
Reply Mon 17 Oct, 2016 08:29 pm
If you donated "items" - not actual cash, then you can't enter it anywhere.

If you must, evaluate its value, then write if off as an advertising expense.

Most companies can't declare charitable donations, anyway.
roger
 
  1  
Reply Mon 17 Oct, 2016 08:52 pm
@PUNKEY,
I believe they can, but only if it's a 501c3 Corp. This is for US companies and the cannot ever deduct political contributions.
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Sturgis
 
  0  
Reply Mon 17 Oct, 2016 09:43 pm
@PUNKEY,
If you bothered to read what was written by the poster, masimo, it is clearly stated that this was a cash donation of$23.00.
PUNKEY
 
  2  
Reply Fri 21 Oct, 2016 09:28 pm
@Sturgis,
"my company donated items worth 23$ to a local cause/charity."

She didn't say they donated $23 cash or wrote a check.



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ascribbler
 
  1  
Reply Fri 21 Oct, 2016 10:44 pm
@masimo,
This is all too funny for words.

I thought I'd post a youtube video on double entry but after several hours of exhaustive research I couldn't find a suitable video and , whilst not exactly none-the -wiser , can't post a link.

The best accounting treatment is to throw the note from the charity away and let the auditor discover the discrepancy during the next stocktake.

Alternatively, I found out that accounting involves posting to what they call a general ledger which affects something called the balance sheet.

The $23 gift of product reduces assets by $23 and the right hand side of the balance sheet called liabilities and owner's equity by $23 , who'd have thought.

Apparently expenditure is recorded on the left of the general ledger as a debit so I'd debit $23 to donations/ advertising. This is where the double entry comes in (surprisingly) and $23 is credited (yes I'm confused too) to purchases (but then you didn't ask about the taxation treatment of charitable donations, the GAAP or mention whether the mysterious donor received some quid pro quo.

I hope this helps you, it certainly helped me.

WARNING: No accountants were present during the posting of this advice.
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PUNKEY
 
  1  
Reply Sat 22 Oct, 2016 01:54 pm
Makes sense.

The company paid cash for the items, then gave the items to the charity.

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