How to make a bookkeeping entry for an item that is donated for an auction, but sells for less than the Fair Market Value (FMV).

 The bookkeeping record for an in-kind donation and its subsequent sale at an auction by a Non-Profit Organization (NPO) involves three separate enteries.  

In this example, a set of golf clubs is donated with a FMV of $500.  At auction the golf clubs sell for $450.

1. Initial Recording of the In-Kind Donation

When the NPO receives an item, it is recorded as a donation at its Fair Market Value (FMV).

Account                                                                                                                                                                     Debit                         Credit
Debit: Auction Items Inventory 

(This could be Temporarily Restricted or Unrestricted)                                                            $500.0


Credit: Auction Contribution Revenue                                                                                                                                         $500.0



To record the receipt of the in-kind donation.

Debit: An asset account, such as Auction Items Inventory for $500..
Credit: Auction Contribution Revenue for $500.00.

2. Recording the Sale at Auction

When the item sells for $450.00 (which is below the FMV/recorded value), the following entries are needed:

Increase Cash and decrease Auction Items Inventory.

Account                                                                                                                                                                     Debit                        Credit
Debit: Cash                                                                                                                                                   

                                                                                                                                                                                      $450.0


Credit: Auction Items Inventory                                                                                                                                                     $450.0





B. Recording $50 the Difference between FMV and Sale Price.
Since the clubs were recorded as revenue of $500 but only generated $450 in cash, the NPO must record the $50 difference as an expense.

Account                                                                                                                                                                     Debit                       Credit
Debit: Loss on Auction Inventory                                                                                                              
                                                                                                                                                                                        $50.0

Credit: Auction Items Inventory                                                                                                                                                     $50.0





Net Effect: The initial revenue was recorded at $500.00, cash increased $450.00, and the difference of $50.00 is recorded as an expense. 


Summary of Double Entry Accounting Records

Debit $500 to Auction Items Inventory
Credit $500 to Auction Contribution Revenue

Debit $450 to Cash