How to Record a Donation in QuickBooks Desktop/Online?

Whether you’re managing donations for a nonprofit organisation, tracking charity contributions, or recording sponsorship’s, QuickBooks provides the ability to track donations in the form of cash, checks, and credit cards. These revenues should be entered as donations to ensure that the appropriate tax fields are used for year-end deductions. QuickBooks provides you a feature to add donations for any charitable trust where it needs to be set up in QuickBooks itself.

Instead of entering a donation as a deposit, it’s best to create a sales receipt form to create additional tracking options such as the type, the program or the source of donation. This information can save a significant amount of time when tax auditing or financial reporting.

What Are Donations or Charitable Contributions in QuickBooks?

A charitable contribution is also known as a charitable donation. It is a gift from a donor that is in the form of either cash or property. The main purpose of the contribution is to assist the nonprofit organization with a specific goal or benchmark.

These contributions can come in various forms, including cash, checks, stocks, and even tangible goods like clothing or equipment. Tracking donations in QuickBooks is crucial for financial management as it allows organizations to maintain accurate records of all incoming funds, ensuring transparency and accountability.

Donations are recorded and tracked to monitor financial inflows and support. Whether it’s funding specific projects, covering operational expenses, or contributing to charitable initiatives, donations play a vital role in optimizing your financial resources and serving your beneficiaries effectively.

Why is it Important to Record Donations in QuickBooks?

Recording donations in QuickBooks is crucial for maintaining accurate financial records, ensuring compliance with accounting standards, and facilitating transparent reporting of all contributions received.

It allows organizations to track donations by source, purpose, and type, providing clear insights into financial inflows. By categorizing donations, nonprofit organizations can effectively demonstrate their financial stewardship to donors and regulatory authorities. Accurate categorization supports transparency and accountability, which are crucial for maintaining tax-exempt status.

Record Donation or Charitable Contributions in QuickBooks Online

When you make donations or charitable contributions, how you record them depends on the type of donation you’ve made. Recording a cash donation is different from recording the donation of products or services that you normally sell.

Cash donations

To donate cash, you can set up the charitable organization you’re donating to as a vendor so that when you make a donation, you can record it as a check or a bill and payment, just as you would for any other payment to a vendor.

However, make sure that the expense account you select from the Category drop-down list under the Category details section is a dedicated expense account for tax-deductible contributions. This account isn’t used for any other expenses, as this will make things easier for your accountant or tax prepare.

If you don’t already have an expense account for donations, you can select + Add new from the dropdown list under the Category column to add one when you record the donation.

Donations of Products or Services Usually Sold by a Business

To record a donation of products or services in QuickBooks, create an invoice, set up a Charitable Contributions account, add a product/service item, issue a credit memo, and verify its application to the invoice.

To record a product and services donation, adhere to the steps listed below:

Step 1: Create an Invoice

To start reconciling a donation, you must create an invoice for the product or service so that you can record the income. Don’t skip this step, or your balance will be affected when you perform the other steps in the process. 

Step 2: Create an Account for Charitable Contributions

If you want to make an account to use to record charitable contributions, follow these steps:

1. Navigate to Settings and then select Chart of Accounts.
2. Press the New button.
3. Choose Expenses from the Account Type dropdown list under the Account dialog box.
4. Under the Detail Type dropdown list, click on Charitable Contributions.
5. Type a Name for the account (like Charitable Contributions).
6. Press Save and Close.

Once done with creating this account, the next step is to create a product/service item for donations.

Step 3: Create a Charitable Contributions Product/Service item

To create a product/service item for charitable contributions, go through the following steps:

1. Hover over Settings and then click on Products & services.
2. Click New.
3. Select the type of product or service under the Product/Service information panel.
4. After this, enter a Name for the item (like Charitable Contributions).
5. Tick-mark I sell this product/service to my customers checkbox.
6. Choose the Charitable Contributions account you created from the dropdown list in the Income account field.
7. Hit the Save and Close tabs.

Now, if you have created an account and a product/service item, it’s time to issue a credit memo for the value of your donation.

Step 4: Issue a credit memo

To issue a credit memo for the value of the products or services you’re donating, do the following:

1. Select + New.
2. Choose Credit memo under Customers.
3. Enter or select the Customer you donated the product or service to.
4. After this, click on the Charitable Contributions item in the  Product/Service column and then type the Amount of your donation as a positive number.
5. Write down Donation or Charitable Contribution under the Description field.
6. Hit the Save and Close icons.

The credit memo reflects the amount of your donation. After this, you are recommended to verify that it has been applied to the invoice you created.

Step 5: Check the credit memo was applied to the invoice

The final step is to authenticate that the credit memo you created has been applied to the invoice that you’ve created for the donated items.

To confirm that the credit memo has been properly applied, adhere to the steps listed below:

1. Head to Sales, then select Customers.
2. Choose the customer you donated the product or service to from the list.
3. After this, verify that the Invoice transaction you created at the beginning of the process has a Status of Paid on the Transaction List tab.
4. Now, check that the Credit memo transaction you created is noted as Closed in the Status column.
5. Also, ensure that a new Payment transaction is listed, with US $0.00 listed in the Total column and Closed noted in the Status column.
6. Once done, the donation has now been correctly recorded.

Record a Donation or Charitable Contributions in QuickBooks Desktop

When you make donations or charitable contributions, how much you record them totally depends on the type of donation you’ve made. For non-cash charitable contributions, you must create an invoice in QuickBooks desktop. After this, create an account to use to record charitable contributions from your Chart of Accounts. Then, create a product item for donations. From here, you need to issue a credit memo for the value of your donation.

To create an Invoice

1. Navigate to the Customers menu and select Create Invoices.
2. From the Customer: Job drop-down, choose a customer or customer job. If the customer or job is not on the list yet, you can hit the Add New icon.
3. Now, add all the necessary information.
4. Press Save & Close.

To make an account to use to record donations

1. Head to the Lists menu and select the Chart of Accounts.
2. Click on the Account drop-down arrow at the bottom of the window and hit the New tab.
3. Set Expenses as the Account Type and Press Continue.
4. Enter a Name for the account.
5. Then, choose Save & Close. 

To create a product/service item for the donation

1. Hover over List at the top menu bar and choose Item List.
2. Click the arrow next to Item and then press New.
3. Now, select the Inventory Part under the Type section.
4. Use the account you’ve created from the drop-down list under the Income account field.
5. After this, add the needed details.
6. Hit the OK tab.

To Issue a Credit Memo for the value of the products you’re donating

1. Choose Customers and then select Create Credit Memos/Refunds.
2. Then, enter the info for the credit memo or refund.
3. Press Save & Close when you’re done.

Set up and Record In-kind Donations in QuickBooks

An in-kind donation is a product, service, or asset donated to an organization. This can be printing services, office supplies, leased space, or professional services. It enables you to set up and record in-kind donations and other charitable contributions.

Here’s how:

Note: Check twice with your accountant if a donation should be recorded as in-kind.

Set up In-kind donations

To set up in-kind donations, first check for an existing in-kind donations account in your chart of accounts. If needed, create an in-kind donations account and a clearing account. Then, add a product or service item for each donation.

Follow the step-by-step information below:

Step 1: Check if you already have an in-kind donation account

Make sure you don’t already have an in-kind donation account in your chart of accounts to avoid duplicates.

1. Navigate to Settings, then select Chart of Accounts.
2. Now, enter In-kind donations in the Filter by name or number field. 
3. If no account is displayed, you can now create an in-kind donations account.

Note: If you see an account named “In-kind donations”, your chart of accounts is already set up, which means you don't have to do anything. 

Step 2: Create an in-kind donation Account

If you already have an in-kind donations account, you no longer need to create one, and you can easily skip this step. 

1. Hover over Settings, then choose a Chart of Accounts.
2. Click New.
3. Enter In-kind donations under the Account name field. 
4. After this, select Income from the Account type dropdown menu. 
5. Under the Detail type dropdown, choose the Non-Profit Income option.
6. Press Save at the end. 

Step 3: Make a Clearing Account

To keep track of your in-kind donations, create a clearing account. This helps you to record your in-kind donations’ sales receipts or bill payments.

Follow the steps listed below:

1. Go to Settings and then choose a Chart of accounts.
2. Hit the New tab. 
3. Type In-kind Clearing under the Account name field. 
4. Once done, select Bank from the Account type dropdown menu. 
5. In the Detail type dropdown, click on Checking.
6. Enter the opening balance amount under the Opening Balance field. Then, choose the starting date in the Date field.
   Note: The opening balance can be $0.
7. Press the Save button. 

Step 4: Create a Product or Service item

Create a product or service item for each in-kind donation you receive and accurately track what you have. This allows you to record in-kind donation items to your books for a more detailed financial report.

Let’s see how:

1. Head to Settings and then choose Products and Services.
2. Press New and then click Service.
3. Enter the name, item type, and category of the item under the Basic Info section.
4. In the Sales section, select In-kind donations from the Income account drop-down.
5. After this, opt for I purchase this service from a vendor under the Purchasing section.
   Note: You can add your product description or purchase cost if required.
6. Click on the Create new option.

Record In-kind donations

To record in-kind donations in QuickBooks, create a sales receipt for the donation’s fair market value, then create a bill for the same amount, and finally mark the bill as cleared.

Follow the step-by-step information below:

Note: If you receive fixed assets like vehicles, computers, or land, use an expense or fixed asset account on the bill. You can consult with your accountant if you’re unsure about whether an item is a fixed asset or not.

Step 1: Create a sales receipt

1. Navigate to + New, and then choose Sales Receipt.
2. Select a customer from the Customer dropdown menu.
   Note: If you haven’t set up your customer yet, select + Add new.
3. Enter the date of the donation in the Sales Receipt Date field. 
4. After this, select the In-kind Clearing bank account that you created from the Deposit To dropdown. 
5. Under the Product/Service dropdown, select the in-kind donation item. Then, add a description in the Description field.
6. Type the fair market value (FMV) of the donation in the Amount field.
   Note: If you’re not sure about the fair market value of the donation, connect with your accountant.
7. At last, press the Save and close tabs.

Step 2: Create a bill

1. Head to + New, then click on Bill.
2. From the Vendor dropdown menu, choose the donor’s name.
   Note: If you haven’t set up your donor’s name in the vendor list, select + Add new.
3. Select the in-kind donation item from the Product/Service dropdown under the Item details section. 
4. After this, enter the fair market value (FMV) of the donation in the Amount field.
   Note: Contact your accountant if you’re not sure about the fair market value of the donation. 
5. Hit the Save and Close tabs.

Step 3: Mark the Bill as cleared

1. Go to + New and then choose Pay Bills.
2. Now, select In-kind Clearing from the Payment account drop-down menu.
3. Tick-mark the checkbox of the bill you entered.
4. Click Save and close.

Bottom Line!

The accurate recording and categorization of donations and sponsorship’s in QuickBooks allows organizations to present a comprehensive and transparent picture of their financial activities. It also ensures that the donations are reported in compliance with generally accepted accounting standards. With this process, you can get up-to-date financial statements or reports and make informed decisions according to your business needs.

Frequently Asked Questions

Q 1. How do I record a cash donation in QuickBooks?

Ans. To record a cash donation in QuickBooks, set up the charitable organization as a vendor and enter the donation as a check or bill payment. Ensure the expense account selected is dedicated to tax-deductible contributions for easier tracking during tax preparation.

Q 2. Why is it important to create a Charitable Contributions account in QuickBooks?

Ans. Creating a Charitable Contributions account allows you to accurately record and categorize donations, ensuring proper financial reporting and tax compliance. This helps maintain transparency and accountability in your financial management.

Q 3. How do I record non-cash charitable contributions in QuickBooks Desktop?

Ans. In QuickBooks Desktop, record non-cash charitable contributions by creating an invoice for the donation, setting up a Charitable Contributions account, creating a product item for the donation, and issuing a credit memo for the value of the donated items.

What type of account is charitable contributions in quickbooks?

A charitable contribution in QuickBooks is recorded using an expense account, specifically a “Charitable Contributions” account.

How do I record charitable donations in QuickBooks nonprofit?

Here’s a step-by-step guide to enter donations in QuickBooks for a nonprofit:

For Cash Donations:

1. Set up the charitable organization as a vendor: Go to the Vendors menu and select “Add New Vendor then Enter the organization’s details and save.
2. Record the donation as a check or bill payment: Navigate to the Banking menu and select “Write Checks” or “Enter Bills.” >> Choose the vendor you just set up.

For Donations of Products or Services:

1. Step 1: Create an Invoice for the donated items: Go to the Customers menu and select “Create Invoices.” >> Choose the customer or job if applicable.
2. Step 2: Set up a Charitable Contributions Account.
3. Step 3: Create a Charitable Contributions Product/Service item: Go to Settings and select “Products & Services.” >> Click “New” and choose the type (Product or Service).
4. Step 4: Issue a Credit Memo for the donation: Navigate to the “+ New” menu and select “Credit Memo.” >> Choose the customer or job you donated to.
5. Step 5: Verify the Credit Memo was applied to the Invoice: Go to Sales and select “Customers.” >> Choose the customer and check that the Invoice status is “Paid.”

How do I keep track of charitable donations in QuickBooks?

To track charitable donations in QuickBooks, you can use several methods depending on the type of donation:

1. Cash Donations: Set up the charitable organization as a vendor and record the donation as a check or bill payment. Ensure you select a dedicated expense account for tax-deductible contributions.
2. Donations of Products or Services:
   1. Create an Invoice: Start by creating an invoice for the donated product or service.
   2. Create a Charitable Contributions Account: Set up this account in the Chart of Accounts.
   3. Create a Charitable Contributions Product/Service Item: Add this item in Products & Services.
   4. Issue a Credit Memo: Reflect the donation’s value in the credit memo and verify its application to the invoice.
3. In-kind Donations:
   1. Set Up In-kind Donations: Ensure you have an In-kind Donations account and create a clearing account if needed.
   2. Create a Product/Service Item: For each in-kind donation, add it in Products & Services.
   3. Record the Donation: Create a sales receipt for the fair market value, then create and clear a bill for the same amount.

How do I enter in-kind donations in QuickBooks Desktop?

To record in-kind donations in QuickBooks Desktop, follow these steps:

Step 1: Create a Sales Receipt

Navigate to + New and select Sales Receipt > Choose a customer from the Customer dropdown menu >> Enter the date of the donation >> Select the In-kind Clearing bank account from the Deposit To dropdown >> Under the Product/Service dropdown, select the in-kind donation item and enter its fair market value in the Amount field >> Press Save and close.

Step 2: Create a Bill

Go to + New and select Bill >> Choose the donor’s name from the Vendor dropdown menu >> Select the in-kind donation item from the Product/Service dropdown and enter the fair market value in the Amount field >> Click Save and Close.

Step 3: Mark the Bill as Cleared:

Go to + New and select Pay Bills >> Choose In-kind Clearing from the Payment account dropdown menu. >> Tick the checkbox for the bill you entered. >> Click Save and close.

How to record a sponsorship in QuickBooks Accounting Software?

To record a sponsorship in QuickBooks, follow these steps:

1. Create an Invoice: Start by creating an invoice for the products or services donated.
2. Create a Charitable Contributions Account: Set up an account for charitable contributions under the Expenses category.
3. Create a Charitable Contributions Product/Service Item: Set up a product/service item named “Charitable Contributions” and link it to the Charitable Contributions account.
4. Issue a Credit Memo: Create a credit memo for the value of the donation, using the Charitable Contributions item.
5. Verify the Credit Memo: Ensure the credit memo has been applied to the invoice and check that it shows as paid.