Proper Accounting and Bookkeeping Method

The difficult economic climate of recent years has led more businesses to utilize barter transactions, in which they trade their products and services for other products and services. Many businesses wrongly assume they don’t need to account for these transactions. Accounting for bartering transactions is required by the IRS and is essential to accurately determining the financial health of your business. With the help of, my books have never been so clearly defined and organized: no longer will I have to fret over the IRS looming over my shoulder due to some mistake that I made.

When you barter for other goods and services, you are still investing time and resources to sell the item you are trading. You are simply receiving a commodity other than cash in exchange for your product or service. Not accounting for barter transactions is equivalent to not accounting for revenue and expenses. It’s impossible to determine how well your business is doing if you can’t generate accurate financial statements.

Recording these transactions is quite simple if you break them down into individual pieces. When you barter, two transactions occur: 1) you sell something and 2) you buy something. The most confusing factor can be determining the value of the transaction. IRS guidelines dictate that you must value the transaction at the fair market value of the item you are receiving. In most cases, the fair market value is already known-it’s the normal sale price of the item. The sale of your goods or services is valued at the purchase price of the goods you are receiving. Of course, you also have to record the receipt of the item. If the item you are receiving is a valid business expense, you will record it just as you would if you had paid cash. Instead of cash, you paid with your goods or services. If the item you are receiving is for your personal use, you need to record it as if you took cash out of your business (draw, payroll advance, etc). Proper accounting is necessary to maintain this.