Journal Entry for Goods Given as Charity or Distributed as Free Samples
Charity generally refers to the voluntary giving of help, typically in the form of money or goods to those in need. Goods given as free samples are however a way of advertising. Both acts when performed by a company are required to be recorded in the books of accounts.
Goods given to charity or goods distributed as free samples are not to be accounted for as sales. Instead, they are accounted as expenses, simply because, in this case, the outflow of goods happen without any consideration.
Journal Entry for Goods Given as Charity
When accounting for goods given as charity, purchases are reduced with the exact cost of goods contributed.
| Charity A/C | Debit |
| To Purchases A/C | Credit |
Example
A company, Unreal Pvt Ltd. gave goods to charity which cost them 20,000. Journal entry for charity, in this case, will be posted as;
| Charity A/C | 20,000 |
| To Purchases A/C | 20,000 |
Treatment of Charity in Final Accounts
- The amount is reduced from purchases in the trading account.
- It is shown as an expense on the debit side of the income statement.
Journal Entry for Goods Distributed as Free Samples
When accounting for goods distributed as free samples purchases are credited and the advertisement account is debited.
| Advertisement A/C | Debit |
| To Purchases A/C | Credit |
Example
A company Unreal Pvt Ltd. distributed goods as free samples, which cost 15,000 to the company. Journal entry for goods distributed as free samples will be posted as;
| Advertisement A/C | 15,000 |
| To Purchases A/C | 15,000 |
Treatment of Free samples in Financial Statements
- The amount is deducted from purchases in the trading account.
- It is shown as an expense on the debit side of the profit and loss account.
Journal Entry for Loss by Fire
Company Purchases 10,000 goods and 1000 of goods lost due to fire.
| Loss by Fire A/C | Debit |
| To Purchases A/C | Credit |
Example
A company Unreal Pvt Ltd. loss goods by fire, which cost 10,000 to the company. Journal entry for loss by fire will be posted as;
| Loss By Fire A/C | 15,000 |
| To Purchases A/C | 15,000 |
Treatment of Loss by Fire in Financial Statements
- The amount is deducted from purchases in the trading account.
- It is shown as an expense on the debit side of the profit and loss account.