Bartering & What It Has to Do With Accounting

Bartering

Bartering (also known as trading), is the act of exchanging goods or services for other goods or services without money.

Let’s say you’re the local plumber that everyone knows and trusts. Your favorite restaurant calls with a toilet issue (crappy, I know) and needs it fixed pronto. However, they would like to give you a $250 gift card to the restaurant in exchange for your toilet fixing abilities. You’re probably thinking, well that’s great, now you get to eat at your favorite restaurant and they get a working toilet. It seems like a pretty sweet deal so you agree to the arrangement and accept the gift card. Later that day, you fix the toilet, shake hands (after washing them first) and go about your day.

The week following, you take a couple of your employees out to lunch at this restaurant. After all, they’ve worked hard and you want to show them you took notice. You use the gift card to pay for the lunch ($75), crumple up the receipt and head back to work. No big deal right?

Not so fast.

If accounting police existed (which we think would be pretty cool), you would be written up for this infraction. Accounting rules require you to capture all business transactions (including non-cash transactions … one of which is called BARTERING) in your financial data. How you might ask? The accounting is quite simply (it’s the tracking that gets complicated).

We suggest setting up a bartering clearing account in your chart of accounts. Let’s go back to the above example and walk through the accounting side of this transaction.

First, you would invoice the customer (to record the revenue) and issue a credit memo.

Accounts Receivable                                            $250

      Service Revenue                                                          $250

Bartering Clearing Account                                  $250

      Accounts Receivable                                                  $250

 

Then as you use the gift card, you would record the respective expense(s).

Meals & Entertainment                                           $75

      Bartering Clearing Account                                        $75

 

If your system does not allow you to bypass entering a bill for an expense, enter the bill and issue a vendor credit.

Meals & Entertainment                                           $75

      Accounts Payable                                                       $75

Accounts Payable                                                 $75

      Bartering Clearing Account                                        $75

 

Once the gift card is used, the bartering clearing account should net to zero. The key to accounting for bartering is making sure you still record the income earned and expenses incurred. And remember to keep your receipts (which in the financial world is just good practice as a whole)!

In conclusion, we’re not saying bartering is a bad thing, or something you shouldn’t do ever. We are saying, however, that you need to be cautious when entering into a bartering relationship and track everything. Even though no cash exchanged hands, you still need to track it.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One comment on “Bartering & What It Has to Do With Accounting

  1. […] something with another company we need to be very careful to report everything (Mike’s right. Learn more here).  If we execute it correctly it is one of the best ways to save […]

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