February 20, 2024
In a previous blog post How to Account For Charity Auction Items, I presented a method that could be used to account for charity auction items (Option 1). As a follow up to that post, I wanted to present an alternative method (Option 2) that could be used. 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.
Option 1 is a simplified method that removes the step of reporting the auction sale income and expensing the auction item. This method makes sense when the receipt and sale are treated together as part of the same event in the same time period. The contribution income equals the amount of cash received at the auction.
Option 2 makes sense to use when there is a time lag between the receipt of the auction items and subsequent auction. They are reported as two separate events. This method would work well when the donated items are received in a different accounting period than the auction.
Here is a side-by-side comparison of the two methods.
| Receipt of donated item at FMV | |||||
| Option 1 | Option 2 | ||||
| Donated item | 1,000 | Donated item | 1,000 | ||
| In-kind contribution revenue | 1,000 | In-kind contribution revenue | 1,000 | ||
|
Sale of Donated Item = FMV |
|||||
| Cash | 1,000 | Cash | 1,000 | ||
| Donated item | 1,000 | Auction income | 1,000 | ||
| Donated item | 1,000 | ||||
| Cost of sale | 1,000 | ||||
|
Sale of Donated Item > FMV |
|||||
| Cash | 1,500 | Cash | 1,500 | ||
| Donated item | 1,000 | Auction income | 1,000 | ||
| Contribution revenue | 500 | Contribution revenue | 500 | ||
| Donated item | 1,000 | ||||
| Cost of sale | 1,000 | ||||
|
Sale of Donated Item < FMV |
|||||
| Cash | 500 | Cash | 500 | ||
| Donated item | 1,000 | Auction income | 500 | ||
| In-kind contribution revenue | 500 | Donated item | 1,000 | ||
| Cost of sale | 1,000 | ||||