Are you a dentist who does work in exchange for IT services? Maybe you are a physical therapist who exchanges services with someone who does your social media. These are great examples of bartering.
How do you account correctly for bartered transactions? When accounting for barter entries, enter the amount of revenue and expense recognized from each barter transaction on the Income Statement during the period that the barter occurred.
Clearly label all barter income and expense transactions in QuickBooks. In addition, clearly mark all supporting documents pertaining to the barter transaction such as the sales receipt, invoice and barter exchange statement. This will support the fair market value used in accounting for the barter transaction.
The annual fair market value of barter transactions is reported on the "Proceeds from Broker & Barter Exchange Transactions" line on Form 1099-B. According to the IRS, "The fair market value of goods and services exchanged must be included in the income of both parties."
Example (1): A doctor performs a medical visit in exchange for an accountant’s tax return prep.
Debit: Accounting Expense xxx
Credit: Medical Income xxx
(at the determined fair market value of the accounting services received)
Example (2): A fitness trainer performs physical training in exchange for (personal) dental work.
Debit: Owner’s Draw xxx
Credit: Fitness Income xxx
(at the determined fair market value of the dental work provided)
What other questions or challenges do you have about accounting for barter exchanges? Share them in the comments below!