How to Record Donations Received in Accounting for Charities
Recording donations properly isn't just good bookkeeping—it's a legal requirement for Canadian charities. The Canada Revenue Agency (CRA) has strict rules about how you document every dollar that comes through your door.
This guide walks you through exactly how to record donations in your charity's accounting system. You'll learn the step-by-step process, understand CRA requirements, and discover best practices that keep your organization compliant.
Whether you're managing a small nonprofit or overseeing a large charitable organization, accurate donation recording protects your charitable status and builds donor trust.
Understanding Donation Types in Canadian Charities
Different donations require different recording methods. Before you can properly account for gifts, you need to identify what type of donation you've received.
Cash Donations
Cash donations are the most common type you'll handle. These include money received through various payment methods.
Common cash donation channels include:
- Direct bank deposits and transfers
- Personal and corporate cheques
- Credit and debit card payments
- Online payment processors (PayPal, Stripe, Canada Helps)
- Monthly pre-authorized debits
- E-transfers and mobile payments
You record cash donations as revenue immediately when you receive them. The accounting entry is straightforward: debit your bank account and credit your donation revenue account.
In-Kind Donations
In-kind donations are non-cash gifts like goods, services, or property. Recording these requires you to determine fair market value.
You can only issue official donation receipts for in-kind gifts when specific conditions are met. The donor cannot receive any advantage, and you must be able to establish a fair market value.
Requirements for in-kind donation receipts:
- Item must have clear market value
- Value must be determined at time of donation
- Appraisal needed for items over $1,000
- Item must be usable by your charity
- No goods or services exchanged in return
Stock and Securities Donations
Donations of publicly traded securities come with special tax advantages for donors. These gifts include stocks, bonds, and mutual funds.
When you receive securities, you need to record them at their fair market value on the date of transfer. The donor receives a receipt for this value, and your charity pays zero capital gains tax.
This makes securities donations attractive for donors with appreciated investments. You'll work with the donor's broker to transfer the securities directly to your charity's investment account.
Gifts of Property and Real Estate
Real estate and property donations are complex but potentially valuable. These require professional appraisals and careful documentation.
You must obtain an independent appraisal before issuing a receipt for property donations. The CRA scrutinizes these gifts carefully, so proper documentation is essential.
Work with a qualified accountant when recording property donations. The accounting treatment depends on whether you'll use the property or sell it immediately.
CRA Requirements for Recording Donations
The CRA sets clear standards for how Canadian charities must handle donations. Following these requirements protects your charitable status and ensures donor confidence.
Official Donation Receipt Standards
Every official donation receipt must include specific information. Missing even one required element can invalidate the receipt.
Mandatory information on donation receipts:
- Statement that it's an official receipt for income tax purposes
- Your charity's registered name and address
- Your charity's CRA registration number
- Unique receipt number from your sequential numbering system
- Date the donation was received (not when receipt was issued)
- Donor's full name and address
- Amount of the donation (or fair market value for in-kind)
- Eligible amount for tax purposes
- Date the receipt was issued
- Authorized signature from your organization
- Your charity's website address
- Location where the receipt was issued
You cannot issue receipts until you actually receive the donation. Post-dated cheques don't count until the date written on the cheque.
Books and Records Requirements
The CRA requires you to maintain detailed records of all donations. These records must be available for inspection at any time.
You must keep donation records for at least six years from the end of the tax year they relate to. This includes the original documentation, not just digital summaries.
Essential donation records to maintain:
- Duplicate copies of all official donation receipts
- Donor information and contact details
- Bank deposit records and statements
- Documentation supporting fair market value (for in-kind donations)
- Gift agreements for restricted donations
- Board resolutions accepting unusual gifts
- Correspondence with donors about their donations
Digital record-keeping is acceptable as long as you can produce readable copies when requested. Many charities scan paper records and maintain secure digital archives.
Eligible vs. Non-Eligible Amounts
Not every donation qualifies for the full receipt amount. You need to calculate the eligible amount by subtracting any advantage the donor received.
The advantage rule protects the integrity of the charitable tax credit system. If a donor receives goods or services in return for their donation, you must account for this.
Understanding the De Minimis Threshold
Before calculating advantages, check if the de minimis threshold applies. The CRA allows you to ignore small advantages that fall below this threshold, making receipting much simpler for common situations.
The de minimis rule states that you don't need to deduct the advantage if it's the lesser of:
- $75, or
- 10% of the donation amount
When the de minimis threshold applies, you can issue a receipt for the full donation amount without reducing it for the advantage received.
De minimis threshold examples:
Example 1: A donor gives $500 and receives a coffee mug worth $30.
- The advantage ($30) is less than $75
- The advantage ($30) is less than 10% of $500 ($50)
- Since the advantage meets both conditions, issue a receipt for the full $500
Example 2: A donor gives $100 and receives a t-shirt worth $25.
- The advantage ($25) is less than $75
- But the advantage ($25) exceeds 10% of $100 ($10)
- The advantage doesn't meet the de minimis threshold, so you must deduct the $25 and issue a receipt for $75
Example 3: A donor gives $1,000 and receives event admission worth $85.
- The advantage ($85) exceeds $75
- Although it's less than 10% of $1,000 ($100)
- Since the advantage exceeds $75, it doesn't qualify for de minimis treatment, so deduct the $85 and issue a receipt for $915
Common advantage scenarios:
- Charity dinner tickets (subtract meal value unless de minimis applies)
- Auction items (subtract fair market value unless de minimis applies)
- Goods purchased at premium prices
- Memberships with tangible benefits
- Event tickets with entertainment value
Split receipting applies when the donation amount exceeds the advantage by more than 20%, and the advantage doesn't qualify for de minimis treatment. You issue a receipt for the eligible portion only.
Step-by-Step Guide to Recording Donations
Follow this systematic approach every time you receive a donation. Consistency ensures accuracy and CRA compliance.
Step 1: Verify Donation Eligibility
Before you do anything else, confirm that the donation qualifies for a receipt. Not every gift is eligible under CRA rules.
Check that the donor has provided complete contact information. You'll need their full legal name and complete mailing address for the receipt.
Ensure the donation is actually a gift with no expectation of return. Payments for services or goods aren't donations, even if the donor calls them that.
Step 2: Create the Accounting Entry
Every donation needs a proper journal entry in your accounting system. This creates the official record of the transaction.
Basic journal entry for cash donation:
- Debit: Bank account (increases your assets)
- Credit: Donation revenue account (increases your income)
For restricted donations, use a specific revenue account that tracks the restriction. This helps you monitor whether you're using restricted funds according to donor wishes.
Step 3: Issue the Official Donation Receipt
Generate the receipt immediately after recording the donation. Prompt receipts provide better donor service and reduce errors.
Use your charity's official receipt template that includes all mandatory CRA information. Many accounting software programs can generate compliant receipts automatically.
Assign the next sequential receipt number from your series. Never skip numbers or reuse receipt numbers, even if you void a receipt.
Step 4: Record in Your Accounting Software
Enter the donation details into your accounting system completely. Include the donor's name, receipt number, and any restrictions.
Key fields to complete:
- Donor name and contact information
- Donation date (date received, not deposited)
- Donation amount
- Payment method
- Receipt number issued
- Revenue account (restricted or unrestricted)
- Any special notes or restrictions
Create a donor profile if this is a new supporter. This makes future donation recording faster and helps you track donor history.
Step 5: Reconcile and Report
Reconcile your donation records with your bank statements monthly. This catches errors quickly and ensures accurate reporting.
Keep a running total of donation revenue by category. You'll need these figures for your T3010 annual return and financial statements.
Review your donation records before year-end to ensure everything is properly recorded. Missing or incorrect entries are much harder to fix after December 31st.
Chart of Accounts for Donation Recording
A well-organized chart of accounts makes donation tracking straightforward. Set up your accounts before you start recording donations.
Revenue Account Structure
Your revenue accounts should clearly separate different types of donations. This helps with both internal tracking and external reporting.
Recommended donation revenue accounts:
- Unrestricted donations (general operating support)
- Restricted donations - program specific
- Restricted donations - capital projects
- Endowment contributions
- In-kind donation revenue
- Government grants (if applicable)
Some charities further subdivide these categories by fundraising campaign or donor segment. Choose a structure that matches your reporting needs without becoming too complex.
Asset Accounts for Donations
Donations affect multiple asset accounts depending on the gift type. Your chart of accounts needs to capture these properly.
Cash donations increase your bank account balance. Securities donations increase your investment account balance. In-kind donations might increase inventory or fixed assets depending on the nature of the gift.
Asset accounts used for donations:
- Checking and savings accounts
- Investment accounts for securities
- Capital assets for property donations
- Inventory for donated goods
Match each asset account with the appropriate revenue account when recording donations. This creates a complete picture of your financial position.
Recording Different Donation Scenarios
Real-world donation recording involves various situations. Here's how to handle the most common scenarios you'll encounter.
One-Time Cash Donations
Single cash donations are the simplest to record. You receive the money, record it, and issue a receipt.
Example journal entry for $500 donation:
Debit: Bank Account $500
Credit: Donation Revenue $500
File the receipt copy with your donation documentation. Note the receipt number in your accounting software for easy reference.
Monthly Recurring Donations
Recurring donations require systematic tracking. Set up your donor management system to expect these regular gifts.
Create an automated process for recording monthly donations. Many charities use pre-authorized debit agreements that process automatically.
Best practices for recurring donations:
- Set up donor profiles with payment schedules
- Automate receipt issuance monthly or annually
- Monitor for failed payments and follow up
- Track donor lifetime value easily
- Update payment information promptly when cards expire
Send annual summary receipts showing the total year's contributions. This is more convenient for donors than 12 separate receipts.
In-Kind Donations
In-kind donations need careful valuation before recording. Obtain written documentation of the item's fair market value.
For items over $1,000, you must have an independent appraisal. The appraisal becomes part of your permanent donation records.
Recording a $2,000 in-kind donation:
Debit: Inventory or Asset Account $2,000
Credit: In-Kind Donation Revenue $2,000
Attach the appraisal documentation to your accounting records. Issue a receipt showing the fair market value determined by the appraisal.
Restricted Fund Donations
Restricted donations come with donor-imposed conditions on how you use the money. You must track these separately from unrestricted funds.
Use fund accounting principles to maintain clear separation. Create specific revenue accounts for each type of restriction.
Example of restricted donation recording:
Debit: Bank Account $1,000
Credit: Restricted Revenue - Youth Programs $1,000
Document the restriction details in your system. Review restricted fund balances regularly to ensure you're meeting donor requirements.
Donations with Partial Advantage
When donors receive something in return, you must first check if the de minimis threshold applies before calculating the eligible receipt amount.
Step 1: Check the de minimis threshold
Determine if the advantage is the lesser of $75 or 10% of the donation. If yes, you can issue a receipt for the full amount without deducting the advantage.
Step 2: Calculate if de minimis doesn't apply
If the advantage exceeds the de minimis threshold, subtract the fair market value of the advantage from the total donation to determine the eligible amount.
Example 1: De minimis applies
- Total paid: $500
- Fair market value of benefit: $40
- De minimis threshold: Lesser of $75 or $50 (10% of $500) = $50
- Since $40 is less than $50, de minimis applies
- Eligible amount: $500 (full amount)
Recording when de minimis applies:
Debit: Bank Account $500
Credit: Donation Revenue $500
Issue a receipt for the full $500 since the advantage falls within the de minimis threshold.
Example 2: De minimis doesn't apply
- Total paid: $100
- Fair market value of benefit: $30
- De minimis threshold: Lesser of $75 or $10 (10% of $100) = $10
- Since $30 exceeds $10, de minimis doesn't apply
- Eligible amount: $70
Recording when de minimis doesn't apply:
Debit: Bank Account $100
Credit: Donation Revenue $70
Credit: Other Revenue $30
Only issue a receipt if the eligible amount is at least 20% of the total paid. Below this threshold, you cannot issue a receipt at all.
The $30 portion that represents the advantage goes to a different revenue account. This isn't donation revenue for CRA purposes.
Best Practices for Donation Accounting
Strong donation accounting practices protect your charity and serve your donors well. Implement these systems to maintain excellence.
Implement Internal Controls
Internal controls prevent errors and fraud. Even small charities need basic controls over donation handling.
Essential donation controls:
- Two people involved in counting and depositing cash
- Separate person issues receipts from who receives donations
- Manager approval for unusual donations or large amounts
- Regular reconciliation by someone independent of receipt issuance
- Locked storage for receipt books and donation records
- Restricted access to accounting software
Document your internal control procedures in writing. Train all staff and volunteers who handle donations on these protocols.
Use Accounting Software Effectively
Modern accounting software makes donation recording much easier. Choose software with strong nonprofit features.
Look for donation management capabilities built into your accounting platform. Integrated systems reduce duplicate data entry and errors.
Key software features for donation accounting:
- Automated receipt generation with CRA compliance
- Donor database with complete contact information
- Receipt numbering that prevents duplicates or gaps
- Reporting by donation type, time period, or campaign
- Integration with online payment processors
- Ability to track restricted funds separately
Train your team thoroughly on the software. Consistent usage ensures reliable data for reporting and decision-making.
Maintain Detailed Records
Good record-keeping goes beyond the minimum CRA requirements. Detailed records help you serve donors better and simplify audits.
Create a filing system that makes donation records easy to find. Whether digital or paper, organize by receipt number and date.
Documentation to keep with each donation:
- Original donation instrument (cheque copy, bank record)
- Receipt copy
- Any donor correspondence about restrictions
- Fair market value documentation for in-kind gifts
- Appraisals for property donations
- Thank you letter or acknowledgment sent
Store records securely with appropriate backup systems. Digital records should have regular backups stored off-site.
Regular Reconciliation
Reconcile your donation records with your bank statements monthly. This catches recording errors while they're still fresh.
Compare your receipt number sequence to ensure no gaps or duplicates exist. Account for any voided receipts with proper documentation.
Create a donation reconciliation checklist and follow it consistently. Monthly reconciliation prevents small problems from becoming major issues.
Common Mistakes to Avoid
Learn from others' errors. These common mistakes cause problems for Canadian charities year after year.
Receipt issuance errors:
- Issuing receipts before actually receiving the donation
- Receipting volunteer time or services
- Missing mandatory receipt information
- Using pre-dated receipts
- Issuing duplicate receipts with the same number
Valuation problems:
- Accepting donor's stated value without verification for in-kind gifts
- Failing to obtain appraisals for items over $1,000
- Issuing receipts for items with no clear market value
- Overvaluing in-kind donations to please donors
Documentation failures:
- Not keeping duplicate receipt copies
- Inadequate records supporting fair market value
- Missing documentation for restricted donations
- Disposing of records before six-year retention period ends
Recording mistakes:
- Not separating restricted and unrestricted donations
- Failing to record the donation when received
- Recording gross amount when advantage was provided
- Using incorrect revenue accounts for different donation types
Avoid these pitfalls by implementing strong systems and training your team well. When in doubt, consult with a charity accounting professional before proceeding.
Software Solutions for Recording Donations
The right software makes donation accounting significantly easier. Consider both accounting platforms and donor management systems.
Accounting Software Options
Choose accounting software designed for Canadian nonprofits. Generic business software often lacks the features charities need.
Popular options for Canadian charities:
Evaluate software based on your charity's size, budget, and complexity. Start with a trial period to ensure it meets your needs.
Integrated Donor Management Systems
Donor management systems (DMS) often include basic accounting features. These platforms excel at tracking donor relationships and communications.
An integrated system eliminates double data entry. When a donation comes in, it automatically updates both your donor records and your accounting.
Key features in donor management platforms:
- Complete donor contact database
- Automated receipt generation and delivery
- Online donation integration
- Campaign and appeal tracking
- Thank you letter automation
- Donor communication history
- Reporting dashboards for fundraising metrics
Popular Canadian options include Bloomerang, DonorPerfect, and CanadaHelps for charities of various sizes.
Year-End Donation Recording Considerations
December is the busiest donation month for most charities. Proper year-end procedures ensure accurate reporting and donor satisfaction.
December 31st Cutoff
Only donations received by December 31st count for the current tax year. The CRA is strict about this cutoff date.
A donation is received when you have control of it. For cheques, this means the date on the cheque, not when you deposit it.
Year-end timing rules:
- Mailed cheques: Date on the cheque determines the year
- Credit card donations: Date the charge processes
- Pre-authorized debits: Date the transaction occurs
- Post-dated cheques: Date written on the cheque
- Online donations: Date payment processor confirms the gift
Don't backdate receipts to help donors. This violates CRA rules and risks your charitable status.
Year-End Receipt Summary
Many donors appreciate receiving an annual summary in addition to individual receipts. This helps them with tax filing.
Send summary statements in January showing all donations made during the calendar year. Include the total amount and list individual gift dates.
Reconcile your year-end totals carefully before filing your T3010 return. Your T3010 donation figures must match your audited financial statements.
Year-end checklist:
- ✓ Reconcile all bank accounts
- ✓ Verify all receipts issued have corresponding donations recorded
- ✓ Check receipt number sequence for gaps
- ✓ Confirm restricted fund balances match donations received
- ✓ Review and resolve any outstanding donor questions
- ✓ Generate year-end donor thank you letters
- ✓ Prepare donation revenue summary for T3010 preparation
CRA Audits and Donation Records
The CRA regularly audits charities to ensure compliance with receipting and record-keeping rules. Being prepared makes audits less stressful.
What CRA Looks For
CRA auditors focus on specific areas when reviewing donation records. They want to verify that you're following all the rules.
Common audit focus areas:
- Receipt compliance with all mandatory information requirements
- Proper valuation of in-kind donations
- Appropriate handling of advantage situations
- Complete record retention for required periods
- Proper treatment of restricted donations
- Accurate reporting on T3010 returns
Auditors may test your receipting practices by reviewing a sample of transactions. They'll compare your receipts against source documents and bank records.
Preparing for an Audit
Organization is your best defence during a CRA audit. Keep your donation records systematically filed and easily accessible.
Audit preparation checklist:
- Organize receipt copies in numerical order
- Match each receipt to supporting documentation
- Ensure bank deposit records are complete
- Compile any appraisals for in-kind donations
- Prepare list of all voided receipts with explanations
- Review your receipting policies and procedures
- Ensure all receipts contain mandatory information
Respond promptly and completely to CRA requests. Delays or incomplete responses raise concerns and extend the audit process.
Work cooperatively with CRA auditors while protecting your charity's rights. Consider having your accountant or lawyer present for audit meetings.
Conclusion
Recording donations properly is fundamental to running a compliant Canadian charity. Follow the CRA requirements carefully, implement strong internal controls, and maintain detailed records.
Use appropriate accounting software to streamline your donation recording process. Train your team thoroughly on proper procedures and review your practices regularly.
When in doubt about complex donation situations, consult with a charity accounting specialist. Professional guidance prevents costly mistakes and protects your charitable status.
Need help setting up your charity's donation recording system? Contact B&H Charity Accounting Firm at (289) 301-8883 for expert guidance on CRA-compliant donation accounting. Our team specializes in helping Canadian charities maintain accurate records and stay compliant with all regulatory requirements.
Visit charityaccountingfirm.ca to learn more about our services, or schedule a FREE consultation to discuss your charity's specific donation accounting needs.
Frequently Asked Questions
Here are answers to common questions about recording donations for Canadian charities. These guidelines help you stay compliant with CRA requirements and maintain accurate financial records.
How long must we keep donation records?
You must retain all donation records for at least six years from the end of the tax year they relate to. For example, keep 2024 donation records until at least December 31, 2030.
The CRA can request records at any time during this period. Some charities keep records longer for donor relationship purposes or organizational history.
What is the best way to record donations for a Canadian charity?
The best way to record donations is to use accounting software designed for Canadian nonprofits. Record each donation immediately when you receive it by creating a journal entry that debits your bank account and credits your donation revenue account.
Issue an official tax receipt right away and file a copy with your donation documentation. Make sure you assign a sequential receipt number and include all mandatory CRA information on every receipt.
Reconcile your donation records with your bank statements monthly to catch any errors early. This systematic approach keeps your records accurate and makes year-end reporting much easier.
What details should our charity keep for each donation?
You must keep the donor's full legal name and complete mailing address for every donation. Record the exact amount received and the date you received it, not the date you deposited it.
Keep a copy of the official receipt you issued with its unique receipt number. Save the original documentation like the cheque copy, bank deposit record, or payment processor confirmation.
For restricted donations, document the donor's instructions about how to use the funds. For in-kind donations over $1,000, keep the independent appraisal with your records.
How do we record cash, cheque, and e-transfer donations in our books?
All three types follow the same basic accounting entry. Debit your bank account to show the money coming in and credit your donation revenue account to record the income.
For cash donations, deposit the money immediately and record it on the deposit date. For cheques, record the donation on the date written on the cheque, even if you deposit it later.
E-transfers should be recorded on the date the transfer completes and appears in your bank account. Issue the official donation receipt showing the date you actually received the funds, not a later date.
How should we record restricted vs. unrestricted donations?
Record restricted and unrestricted donations in separate revenue accounts in your chart of accounts. Unrestricted donations go to your general donation revenue account because you can use them for any charitable purpose.
Restricted donations need their own specific revenue accounts based on the restriction type, such as "Restricted Revenue - Youth Programs" or "Restricted Revenue - Building Fund." When you receive a restricted donation, debit your bank account and credit the appropriate restricted revenue account.
Keep detailed notes about each donor's restrictions in your accounting system. Review your restricted fund balances regularly to make sure you're spending the money according to the donor's wishes.
How long must a Canadian charity keep donation records?
Canadian charities must keep all donation records for at least six years from the end of the tax year they relate to. For example, you need to keep 2024 donation records until at least December 31, 2030.
This includes duplicate copies of all official receipts, bank deposit records, donor contact information, and any supporting documentation like appraisals or gift agreements. The CRA can audit your charity at any time during this six-year period and request to see these records.
You can keep records in digital format as long as you can produce clear, readable copies when needed. Many charities keep records even longer for donor relationship purposes, but six years is the legal minimum required by the CRA.
Legal Sources & References
Follow Us
