USA Journal entry for donated farm products


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Our farm has recently begun regular produce donations to a local non-profit food bank. They are not surplus, so they have a value, let's say $1000. I'm having difficulty with the journal entry. The $1000 is a loss of revenue (we could sell the produce, after all), but if I debit income, what do I credit? Or, conversely, if I debit a "Donations" expense line, what do I credit? Since produce goes straight from the fields to the customer, we don't have an inventory asset I can credit. Seems like a simple problem, but the only suggestions I have found have been for the donee's accountant, not the donor.
Thanks for any insight.
 
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Werner Reisacher

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Your company has made a very noble decision to donate produce that you declare as "not surplus" to a local food bank. You also state that since the produce goes straight from the field to the consumer, you do not have an inventory asset.
Making a charitable contribution is a good thing but it should not prevent you to look out for the interest of your company too.
From a financial point of view, these produce have incurred costs. Whether you hold them in an inventory before shipping or deliver them directly from the field to the food-bank does not impact that fact. Capitalize these costs as inventory.
I would consult with a tax advisor who is familiar with the present tax opportunities under the Care act to find the optimal solution on how to declare this "donation" as a charitable contribution. There are programs out there that encouraged farmers to donate their produce which they cannot sell on the market rather than put them to waste.
Even if you should not be able to obtain a tax benefit, I would make sure that the amount you "had to give away" is shown in the accounting as an "identifiable" item for transparency of the financial situation of your company. (bank references, vendor references)
 

Werner Reisacher

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Here are two URL's that might lead you in the right direction:

 

kirby

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Hi akgreen,

Bottom line, the entry you will make will not increase income nor decrease expenses. It will just memorialize the amount donated. So you could do the following:

1. Use a "statistical" account on your general ledger to record the amount of the donation. Not all general ledger systems use statistical accounts. These are not real general ledger accounts. They are just used to record an amount (like units sold, like number of employees) for your own knowledge.

2. I get that your expenses to produce your product involved labor costs, maybe water costs, maybe seed costs, etc. So the expense of production may involve many general ledger expense accounts. So in this method in the Expense section you create a new account called "Contra Production Expense". Then given your example you make this entry

DR Donated Products Expense $1,000.00
CR Contra Production Expense <$1,000.00>
(To record $1,000 donation of products to XXX on MM/DD/YY)

Net result of that entry is no change to your expenses. It just records the amount of the donation.
 
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Thank you both. I had forgotten about contra accounts. I believe I will adapt Werner's suggestion - it reminded me of the approach I take when capitalizing breeding stock born on the farm. As I mentioned, we don't account for garden production in inventory - it is either sold when harvested (an asset debit) or it is hog feed (it disappears, literally). Rarely, but often enough that I have to account for it, we get returns (an expense), but I don't debit income when that happens. So, isn't a donation the same - income that I don't get paid for? Its still revenue, just offset by the donation expense. This should make everyone happy. I've reported the income (the credit), the donation expense (the debit), the transaction won't increase the bottom line profits (if any), and if there are any additional tax credits for 2020 I have a record.
Kirby, I did check out those references, thank you. We have looked at COVID-19 SBA programs, but we don't really need any help. We sell everything we can raise at the moment and have customers on the waiting list because stores are out of stock and people see a rural farm store as "safer" than the big supermarkets. Mixed blessings. Thanks for the insights.
 
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