Our charity has been donated some goods for resale. In preparing the accounts I am following Charities SORP (FRS 102) which has the following as standard accounting practice:
"Donated goods for resale are measured at fair value on initial recognition, which is the expected proceeds from sale less the expected costs of sale, and recognised in 'Income from other trading activities' with the corresponding stock recognised in the balance sheet. On its sale the value of stock is charged against 'Income from other trading activities' and the proceeds from sale are also recognised as 'Income from other trading activities'."
I interpret this as meaning that I should record the fair value of the goods as sales income (say on code 4000 'General Sales', or perhaps better in a custom account 'Donations in kind'), and add it to Stock (1001).
Then when the goods are actually sold, the sale itself should be recorded in the usual way under 'General Sales'. At the same time the original "fair value" amount should be removed from Stock and presumably the corresponding amount should be deleted from the income category (Donations in kind) - otherwise there would be double counting of income.
I am having some trouble getting my head around this (for one thing I am not used to dealing with stock). But my immediate difficulty is as follows:
How should I record the value of the goods as "income"? Normally I post things to nominal accounts via tagging on the bank account. But in this case there is no money involved (no bank transaction to record).
Please could you recommend an approach to follow. For example should it be done by journal, and if so what form should the journal take?
Any help will be much appreciated.