When you record donated services in QuickBooks you never receive any money, therefore nothing happens in the banking part of your books. When it comes to figuring out how to book any transaction in QuickBooks the idea is to think of the books as a mirror image of what really happened. Since this transaction doesn’t impact the banking at all then nothing should happen in the banking part of QuickBooks. This is assuming that the entire transaction is for donated services. But what if we bill a client for $2,800 and donate $1,300 of those services. The client will need to pay us $1,500. So we have several things to post when we record Donated Services in QuickBooks under this scenario.
- We have Sales (income recognized) of $2,800.
- We have donated services (an Other expense) of $1,300
- We have Accounts Receivable of $1,500
- We will receive and deposit a payment from the client of $1,500.
The reason Donated Services is an “Other” Expense is that we are not in the business of donating services.
The trick to this is in understanding the components of the transaction so that you can deal with each one separately and record the transactions accordingly.
Since the $1,300 in donated services will never be received or paid out it does not impact our bank account in real life. Therefore it should not impact our bank account in QuickBooks. This leaves us with really only one other place to deal with donated services in QuickBooks which is the invoice itself. Simply put you would record it as follows:
- Invoice the full amount of the services to your service item at $2,800 to recognize all of the income
- In a separate line item on the same invoice use an item which you set up linked to “Charitable Contributions” – an other expense account and the item is called “Donated Services.”
- Book a “Negative” $1,300 on that Donated Services line item. This will reduce the invoice total to the $1,500 which is where we want it and using the donated services as a “negative” amount will result in a positive expense to Charitable Contributions.
The screen cast will demonstrate this for you:
If you would like the exercise file (The QuickBooks File) so you can see the items and transaction and trace it all through this is a great way to learn about how to set these things up. Click on the folders to download them: