USA Accounting for free labor received

[GoodBooking808]

Hi there,

My bookkeeping client wants to account for services that she received for free. One of her yoga teachers taught a class and did not want to get paid and does not want to get paid in the future also, but my client wants to instead donate what the teacher will not accept. What should I be recording? I was thinking to do a journal entry to debit labor expense and credit a donations owed account. Thank you.

 

[BIG E]

I don't understand - keeping a permanent liability account on the books?
Isn't this really a barter situation?

 

[DrStrangeLove]

It's not barter; it's an in-kind donation by the instructor to the client. And it sounds like there's a lot of potential problems if there isn't some written agreement about what is to be done with the wages the instructor has earned--labor regulations regarding fair wages come to mind.
The part that sticks in my head is how to recognize the revenue that the in-kind donation is creating for the client. Would ASC 958-605-25-2 (requiring recognition of contributions received) apply here? Is the client a not-for-profit enterprise? I don't know if this would also apply to a for-profit client.

 

[BIG E]

And what would happen (ie - insurance liability) if the person donating the "service" would get injured somehow
in the performance of instructing? Who is responsible for coverages?
Situations like this create more than just a bookkeeping problem.

 

[vpryce]

Hi there,

My bookkeeping client wants to account for services that she received for free. One of her yoga teachers taught a class and did not want to get paid and does not want to get paid in the future also, but my client wants to instead donate what the teacher will not accept. What should I be recording? I was thinking to do a journal entry to debit labor expense and credit a donations owed account. Thank you.

Hi there,

My bookkeeping client wants to account for services that she received for free. One of her yoga teachers taught a class and did not want to get paid and does not want to get paid in the future also, but my client wants to instead donate what the teacher will not accept. What should I be recording? I was thinking to do a journal entry to debit labor expense and credit a donations owed account. Thank you.

Excellent that your client received this service "Libre Gratis." The first thing I would recommend is to have something in writing to this effect, that would spell out the arrangement.

Now that we have the agreement portion covered, the entry would be as follows:

Dr. Revenue - Others $ 2,500
Cr. Professional Fees exp $2,500

This produces a zero financial impact for financial statement purposes. However, if you later donate the said $2,500 to a Qualified Charity IRC 26 code section 170. The following will take place for tax purposes.

1. The income from the students who attended the class is regular income $3,500.
2. The instructor will receive not direct tax benefit for this donation.
3. And the tax-deductible portion of the donation is limited to $1,000.

I hope this helps.