A small non-profit, in an effort to raise cash and clear out the office,
sells off several dozen items, some of which are fixed assets on the books
but many of which are long-since expensed items - office supplies, small
filing cabinets, and the like. I think I understand how to record the sale
of the assets that were being depreciated, because the information about
cost and depreciation is readily available, and it's easy to figure the
gain/loss. How are sales of expensed items recorded, that is, what income
account does the revenue get posted to? Does it all get lumped into the
gain/loss on sale of assets account with the gain/loss from the sale of the
fixed assets, or should it be separated out into a different account?
You can lump it all together if you like. There's no impact to the bottom
line, and the tax reporting is the same regardless if you keep those sales
separate from depreciable asset sales.
Would there be some use of that information for the Organization or any
other users of the financial statements?
Thanks Paul... no, there is no value to anyone at all in separating out the
information. I think what made me unsure about this was that all the
examples I could find, and all the instructions for the 990, address
depreciable assets, so I was concerned that there might be some completely
different way of handling the sale of expensed property.
On the 990, it asks for the proceeds and "cost or other basis". Am I
correct in thinking that since these items were expensed, the basis is zero
for all this stuff? The cost has already been "used up" to offset income
long ago. Besides which, who would keep track of the costs for this junk??
and I don't know why they care, anyway, since we're tax exempt.
It's not income in the ordinary course of the Organization's business, so it
should be a Schedule D type of "gain" result. I suppose for things like
supplies, they'd be considered to be short term. You could also just show
the receipts as a reduction in the corresponding expense line.
Yup, zero basis as it's already been expensed.
Correct reporting helps to determine if the income IS exempt. Not all
exempt organizations activities result in exempt income (see unrelated
business activity income / tax), so seeing the sources of income may help in
deciding if there is UBIT due.
Proper reporting also helps potential donors if they look up your
organization's return on sites like Guidestar, etc. Where your money comes
from (how you earn it) and where it goes to (how you spend it) is important.
There's a level of comfort in knowing that the organization is able to
generate enough from it's activities to maintain itself, and that any large
donation isn't going to make next weeks payroll, but for the purposes
of.....whatever non-profit purpose the organization does. Seeing the
organization selling off stuff - a fire sale maybe - might be a little shaky
to the potential donor, wondering if you'll be around long enough to get the
check. More disclosure might be appropriate than less, and not for tax
purposes (as you said, you're tax exempt), but for p/r donor purposes.
There's a place on the first page of the 990-EZ (and, I assume, somewhere on
the 990 as well) to show gain/loss form the disposition of assets other than
inventory. A schedule is to be attached, but, as an indicator of what the
IRS thinks is important, the revised 990 seems to not be concerned with
breaking down amounts below $10,000 (if memory serves) and we're talking
about a total of less than $2000 in this case. I attached a schedule, but
it lumped things together into categories. Nobody really cares that we sold
an instructional poster for $1.00.
Some of our supplies have been on the shelf for 5 or 10 years. The office
manager liked to take advantage of "deals", so if staples were cheaper in
packs of 10 boxes, we got 10 boxes. Nine were still on the shelf years
later. Same with Post-Its, index cards, tape... you get the picture.
Fortunately, gains and losses on the disposition of property are, with a few
exceptions, excluded from UBIT (pub 598, p10), plus this was not a "trade or
business regulary carried on", so that won't be an issue for us.
I neglected to mention that the non-profit has merged with another
non-profit (after selling off all this old junk), so, as it turns out,
donations aren't an issue either!
I appreciate your responses; thanks for the help. The 990 is done and in
the mail. Just in time, too!
More disclosure - especially in these times - is better than less (I
agree with Paul). Your explanation of some of the 'overstocked' items
being sold was informative.
From someone who isn't very good at accounting, make sure you have
your own books reflect exactly what happened. I've ended up spending
long hours tracking down items lumped into miscellaneous (or "I'll do
it later") accounts. Much better to over-document, than to under-
document. Your successor might have the same question some day, and if
you record it, he can get his answer there, and maintain consistency
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