End of Year Donations

Is the end of the year the end of your year? We get questions like this all the time:

Question — The end of our fiscal year is December 31. Our offices our closed from December 31 through January 3rd. If funds are sent on or before December 31 but not received and deposited until after January 3, do those funds get credited for the previous fiscal year as a donation?

Answer — You should set a cut of date in January for when you start recording gifts as 2011 rather than 2010. A week to ten days in is usually sufficient. If funds are sent prior to 1-1-11 (I prefer to use the post mark on the envelope as a guide rather than the date on the check) I would definitely honor those as a 2010 contribution.

You would record those as 2010 income even though you deposit them in 2011. In QuickBooks, you would list each of the checks as a sales receipt and date them for the appropriate December date and have the funds go to Undeposited Funds (you may have to create or activate that account). Then record the bank deposit of those funds on the day they were deposited. The income matches the donor intent and your checking account will reconcile up nicely to the bank statement. Then all you have to do is get the donor thank-yous out so they can prepare their tax returns.

Other ideas out there? Questions? Ask them or tell us in the comments below.

7 responses to “End of Year Donations

  1. Dear Sir:
    Thank you very much for your assistance with end of the year contributions. I attempted to enter one of the donations as a Sales Receipt in Undeposited Funds in Quickbooks. I received the following error message: You cannot associate an item with Sales Tax Payable, Undeposited Funds, accounts receivable, accounts payable, or non-posting accounts. Usually if you sell the item, use an income account; if you buy it, use an expense account.

    I am therefore still perplexed regarding the proper recording of charitable donations received at the end of the year but deposited the next year. Do you have any further advice?

    Respectfully,
    Catherine L. Evans

    • Hi Catherine,

      Sales receipts need to be associated to income (or sometimes expense or bank) accounts. Sounds like you might be trying to link it to another type of account?

    • I believe the word “item” is key. QB treats items as objects or services you sell. Using a sales receipt requires you to create an “item”. QB isn’t great at nonprofit accounting, so you have to fool it. Try creating a “service” item, and “sell” it to your donor, putting in the amount of the donation. It should automatically create a matching entry in undeposited funds.

      I don’t do it this way. Instead, I created an “Other Current Asset” account called Undeposited Funds, and then make a Deposit to our Donations account (an Income account) on 12/31, and select the Undeposited Funds account from the “Deposit To” drop down. When we actually deposit the funds into the bank, I specify the bank account in the Deposit To drop down, and on the line item corresponding to these funds, a specify a From account of Undeposited Funds.

      This method is helpful in other situations too. For example, if you use Razoo, you have the situation that a donor might give money to Razoo for you in December, but Razoo doesn’t actually send you the money until January. Razoo isn’t actually a bank account, but it sort of acts like a bank account that automatically transfers to your real bank account every month. At year end, I need to show that money as income, but it hasn’t been deposited into the bank yet. So, I create an Other Current Asset account for Razoo and use the above method so that the balance sheet will correctly show that income as an asset and the P & L will correctly reflect the actual donations we received for the year.

  2. I am confused about the classification of my tax year. Our 501 (c) 3 has a fiscal year that runs from July 1 to June 30. When discussing my fiscal year, do I use the calendar year in which my fiscal year ends or when it begins? In short, am I currently in Fiscal Year 2011 or Fiscal Year 2012?

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  4. HI,
    Occasionally donors will fill out credit card informaton on a pledge form and mail it in, rather than going on-line and entering credit card info. directly. When this occurs at the calendar year-end, i.e. they mail it on December 30 and we receive on January 2, we would process the credit card info. in January (when received). We believe we should acknowledge this in a similar fashion to checks postmarked prior to year-end and received in January, i.e. posted/acknowledged to the prior calendar year. However since we are not actually inputting the credit card information to the merchant bank site until January, we wanted to ask if you had encountered this question before and what your sense of the correct IRS answer is?
    Many thanks for any assistance you can provide.

    • Differing from postmarked checks, contributions made by credit card should be recorded in the year that the credit card is charged. This information can be found in the “When to Deduct” section of IRS Publication 526.

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