How to Account for Charity Auction Items – Part I

How to Account for Charity Auction Items – Part I 

August 17, 2023

With the holiday season fast approaching, many charitable organizations are making plans for their annual fundraising events that often include an auction of donated items.   Accounting for donated auction items can be a little tricky, so the following is a brief overview of how to properly account for these items so that the revenue is properly reflected in an organization’s statement of activity.

Accounting for the receipt of a donated auction item

If a donor contributes a $1,000 item for your auction, the transaction should be recorded as follows:

Accounting for the sale of a donated auction item

When the $1,000 item is sold at the auction, there are three possibilities for how to record the transaction in the accounting system depending on the sale price of the item.

1. Item sold at fair value:

                Cash                                                                  $1,000                       
                Donated auction items (asset account)                                  $1,000

2. Item sold at more than fair value:

Cash                                                                  $1,500

Donated auction items (asset account)                                  $1,000

Contribution revenue                                                                 $   500

3. Item sold for less than fair value:

Cash                                                                  $   500

Donated auction items (asset account)                                  $1,000

In-kind contribution revenue                       $   500

In summary, the net effect of the transactions is that total contribution revenue should equal the amount of cash received.   If all the donations are received in the same period as the auction, one entry could be used to record the cash received and the revenue. Although this simplifies the accounting, it may not provide the organization or its auditors with the information needed to properly manage or report on the event. Also, if donations are received in a different accounting period than the auction, the entry to show the donated items as an asset on the balance sheet will be needed.

*As a follow up to this post, here is an alternative method that could be used to account for charity auction items, How To Account For Charity Auction Items – Part II.  Option 2 is a little more involved and treats the subsequent sale of the donated auction item as auction income and expenses the fair market value (FMV) of the auction item. The net effect is the same, but Option 2 reports more income and more expense.