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Accounting For Donated Inventory

I have always felt that it is important to give back. The more successful we become the more important it is to give back and help others to achieve success. If we don’t give back as much as we can then the success is literally wasted on us. So I love when clients ask me how to account for donated inventory. It means they are giving back and helping others and I love that.

When you donate inventory you essentially sell it for 0. When you sell inventory for zero what you have is a situation where your sales are zero and your inventory is then transferred at cost from the Balance Sheet Account “Inventory” to the Profit and Loss Account “Cost of Goods Sold”. So donating inventory is actually pretty simple. One additional step is required to get the cost out of “Cost of Goods Sold” and into “Charitable Contributions”. The donation is recorded at the lower of cost or market (in this and most cases that will be cost). So it is NOT recorded for the value of what you would have sold it for, but for what it cost you to acquire it.

There are 2 steps in accounting for donated inventory in QuickBooks. The first step in to record the invoice for the donated inventory. The second step is to record the transfer of cost from Cost of Goods Sold to Charitable Contributions. This means that in between these two steps we will need to determine what the cost was.

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