Recording Nonprofit Auction Funds: 3 Best Practices

Published on 26 Sep 2023 by Auctria

If you’re in charge of planning fundraising events at your nonprofit, you’ve probably hosted—or at least considered hosting—an auction. Auctions stand out among fundraising events for their flexibility in format and compatibility with a variety of other events from galas to golf tournaments.

But with this flexibility comes a challenge: figuring out how to properly record all of the funds associated with your auction. Each supporter can contribute in multiple ways during this type of event—the same individual can buy a ticket, win auction items, and make additional contributions. Add in sponsorships, in-kind donations, and the upfront costs of event planning, and your financial data can quickly become complicated.

However, tracking all of your funding is essential to keep your nonprofit accounting system organized and accurately report your revenue and expenses at the end of the fiscal year. To help you get started, this guide will walk through three best practices for recording the funds your nonprofit brings in from auction fundraising events. Let’s dive in!

1. Correctly Track In-Kind Donation Totals

When procuring auction items, many nonprofits solicit in-kind donations from individuals and businesses. While this is an effective way to reduce upfront costs, you’ll still need to record the monetary value of physical goods to comply with nonprofit fundraising and accounting guidelines. In-kind contributions also require a different recordkeeping process from financial gifts.

Here are some tips to accurately record the in-kind donations you collect in advance of your auction:

  • Know each item’s fair market value (FMV). For goods with a straightforward value, you can simply look up the item’s retail price to figure out its FMV. One-of-a-kind goods or experiences are often more complicated to value—conduct online research on comparable items or ask the provider to estimate the FMV.
  • Record each in-kind donation as a debit and a credit. Note the FMV in both columns of your nonprofit’s transaction record to record the debit of acquiring an asset and the credit of receiving a donation revenue equivalent.
  • Adjust your record of each item after the event. Once the item sells at auction, credit the asset acquisition side of the transaction and debit the donation revenue side to show that the item is no longer in your organization’s possession. You should still make sure you have a record of the transactions that took place.
  • Total all of your in-kind donation values. Nonprofits that receive $25,000 or more in in-kind donations during a single fiscal year are required to file Form 990M with the IRS. Note your donated auction items’ total value, along with any other in-kind contributions you receive throughout the year, so you know whether you need to complete that form.

The best way to ensure your in-kind donations are tracked correctly is to work with a nonprofit accountant, since they can help you navigate the double-entry system and ensure you have a record of every transaction involved in the item procurement process. They can also fill out Form 990M for you if necessary to reduce your team’s stress come tax season.

2. Categorize Event Revenue and Expenses

Although tracking in-kind donations is often the most complicated element of the auction fund recording process, you also need to organize the rest of your revenue and expenses by category so that you can report it accurately in your year-end financial statements.

To gain a better understanding of your fundraising success, it’s most effective to categorize your event revenue by source, such as:

  • Ticket sales
  • Auction item purchases
  • Additional individual donations
  • Contributions from financial sponsors

According to Jitasa, there are two primary ways your nonprofit can organize its expenses. Natural expense categories break down costs based on the nature of the transaction, while functional expense categories organize them according to how your organization used the money.

For an auction, nearly all of your expenses will fall into the functional category of fundraising costs (as opposed to administrative or program expenses). However, your natural expenses may include a variety of payments, such as:

  • Venue rental, decorations, and equipment
  • Catering and entertainment for event attendees
  • Marketing content creation
  • Fundraising software fees
  • Purchases of any auction items that weren’t donated

While you’ll report your auction expenses based on function when you file your annual tax returns, it’s helpful to keep an internal record of your natural expenses. This way, when you plan future auctions, you can reference your past spending and look for ways to further reduce upfront costs.

3. Issue Donation Acknowledgments

In addition to updating your accounting system, another important post-auction responsibility is recognizing the supporters who contributed to your event. Your auction donation acknowledgments serve two major purposes:

  • Thanking each supporter for their unique contributions. According to eCardWidget, prompt and personalized thank-you messages are essential to retain donors over time. Mentioning the different ways a participant contributed to your event—buying a ticket, purchasing specific auction items, or making additional donations—shows that you value their individual contributions.

  • Providing documentation for tax deductions. If a supporter pays more than the FMV for an auction item, the excess amount is considered a tax-deductible charitable contribution. Additional monetary gifts made during the event are also tax deductible, as are individuals’ in-kind donations of auction items. However, your nonprofit needs to issue each donor a written acknowledgment or receipt for the value of any contributions in order for them to claim their tax deduction.

This second purpose means that donation acknowledgments are a critical component of the auction recording process. In your donor database, make note of the ways in which each event participant contributed and whether you’ve sent them a donation acknowledgment to ensure you stay on track.

Properly accounting for your auction funds is essential not only to ensure compliance with nonprofit regulations, but also to improve your donor retention and event planning strategies going forward. Use the tips in this guide to get started, and don’t hesitate to reach out to a nonprofit financial expert like an accountant if you need additional help with any aspect of recording or reporting.

Special thanks to Jon Osterburg for the expert advice. Jon has spent the last nine years helping more than 100 nonprofits around the world with their finances as a leader at Jitasa, an accounting firm that offers bookkeeping and accounting services to not for profit organizations.