Business Accounting Question

[Eric Morey]

On Wed, 2011-03-16 at 15:04 -0700, Mark Phillips wrote:
> 
> 
> On Fri, Mar 11, 2011 at 9:12 PM, Eric Morey <eric at glodime.com> wrote:
> 
> > 
> >         Then you have no donation to keep track
> >         of. You have a sale with a $15 Cost of Goods Sold. 
>         
> 
> I believe there is a donation component, which is the difference
> between the cost (ie fair market value) of the goods or services
> received and the amount the donor gave to the charity. 

Fair market value is a bit subjective, but in this case you are selling
sweathshirts with an established wholesale value of $15. It is common
for retail prices of sweatshirts to be $25 and generally above wholesale
costs. Although your unlikely to be audited, there is a good chance that
the IRS would not agree with you about a donation here. 

>  It is no different than a charity throwing a dinner dance and asking
> for a donation of $100, and the fair market value of the event is
> $40/person. The donor has then donated $60 to the charity. 

Charities have more leeway for such a fundraiser when deciding on a fair
market value. I've been to similar events where the ticket price was the
considered the value of attending and could not be written off on my
personal returns. I have also been to events where part of ticket price
was considered a donation.

If you want to account for a $10 donation for each sweatshirt sale (I
recommend that you don't) use the following: 

> >         Assuming no receivables or payables:
> >         
> >         Debit Merchandise Assets (Inventory) $15
> >         Credit Cash $15
> >         
> >         Debit Cash $25
> >         Credit Merchandise Sales $15 (instead of $25)
> >         Donation > {Donor's Name} $10
> > 
> >         Debit Cost of Merchandise Sold $15
> >         Credit Merchandise Assets (Inventory) $15 
> >         
> 

Disclaimer: I am not an accountant.