Barter Transactions and the IRS/CRA

by Beverlee Zoll
(Eugene, OR)

Beverlee

Beverlee

Received vehicle in payment for work done



I need to know how to record the following transaction:

We are a painting business and have painted a client's home. In exchange, he has given us 2 vans that we will use for painting vehicles. I don't know how to record the transaction.

I need to account for the value of the vehicles received that we will use for our business and take pay off the accounts receivable invoice created when the work was completed to the house.



image of fancy scroll lines



Hi Beverlee,

I would approach the "problem" by breaking the event into two separate transactions.

First create your invoice for painting the home:

DR Accounts Receivable
CR Sales Revenue



Next record the purchase of the vans at fair market value (FMV) ... assuming the vans FMV is the same price as the painting provided.

DR Vehicles
CR Accounts Receivable

Does that make sense Beverlee?


Here are some references to review as the IRS has specific rules concerning the accounting for barter transactions.

IRS Bartering Tax Center

http://www.irs.gov/businesses/small/article/0,,id=187920,00.html


Accounting For Barter Transactions

https://EzineArticles.com/?Accounting-For-Barter-Transactions&id=4132079


Barter Tax and Accounting Issues

http://www.allbusiness.com/accounting-reporting/corporate-taxes/1153-1.html




P.S. I would like to remind you there is a difference between information and advice. The general information provided in this post or on my site should not be construed as advice. You should not act or rely on this information without engaging professional advice specific to your situation prior to using this site content for any reason whatsoever.

Comments for Barter Transactions and the IRS/CRA

Click here to add your own comments

Aug 30, 2011
 How To Record Trades
by: Ramona

I work for a local TV station that trades advertising for services such as janitorial, and even lunch at local restaurants.

I generate an invoice showing the ads that ran but how do I apply the services received in return as payment?

Ramona,
New Mexico, USA
Aug 30, 2011
 The Secret For Recording Barter Transactions
by: Lake

Hi Ramona,

You can see I moved your question so you could reference a previous post on barters.

The original post by Beverlee (see above) explains how to book barter transactions. You will also see references to assist you in deciding what values you need to book the barter at to meet IRS requirements.

The secret to applying a payment to either side of the barter transaction ... i.e. the accounts receivable outstanding or the accounts payable outstanding ... is to utilize a cash clearing account (a current asset account on your chart of accounts).

Once you have setup your accounts receivable and accounts payable, here's what you do next:

1. Book the receipt of payment of the receivable from the "cash" clearing account.

2. Book the payment of the payable through the "cash" clearing account.

3. Verify your balances. If you have booked your transactions correctly, your receivable and payables should be zero ... and the transactions in your cash clearing account should net to zero*.

*If one side of the transaction is less than the other, the receivable OR payable (not both) will still have a balance outstanding but your clearing account should still net to zero. As you continue to transact business, continue to book your entries just like any other receivable or payable invoice ... and repeat the cycle.

Does this make sense to you Ramona?
Sep 03, 2011
 Thanks
by: Ramona

Thanks for responding - and so quickly! There's so much information on your site that will be very helpful to me. Thanks again.
Jun 12, 2014
 Canadian Barter Transaction
by: Elaine, British Columbia

Client made a sale.

Client had a car repair done.

Wants to apply car repair to sales invoice.

How do I post?
Jun 12, 2014
 Canadian Barter Tranasactions
by: Lake

I think you are saying you want to barter payment of the sales invoice.

As you can see from the barter transactions above, you want to run your payments of the sales invoice and the car repair bill through a clearing account. You could use your cash account as your clearing account if you want.

Write a memo on both transactions that clearly states it is a barter transaction. The amounts should clear to zero when you are done if posted correctly.

Check out CRA's bulletin IT-490 Barter Transactions. It explains that "a barter transaction is effected when any two persons agree to a reciprocal exchange of goods or services and carry out that exchange usually without using money. In a barter transaction between persons who are dealing with each other at arm's length, it is a fundamental principle that each of those persons considers that the value of whatever is received is at least equal to the value of whatever is given up in exchange therefor."

When explaining bitcoin transactions, CRA explains "a barter transaction occurs when any two persons agree to exchange goods or services and carry out that exchange without using legal currency."
Jun 29, 2016
 BOOKKEEPER
by: Eric

What about GST & QST for the goods or services I received from the other party (barter)?

Do I have to receive a bill from them with taxes break-down?

Thank you.
Jul 12, 2016
 Eric
by: Lake

It is my understanding that you should receive an invoice for the purchase which includes outing the sales tax paid. The "barter" portion of this transaction just relates to how you paid the invoice.

Click here to add your own comments

Return to Ask a Bookkeeping Question.

 
 

Back to top