Insights: Article

What Your Small Business Needs to Understand About Bartering

By   Jenni Huotari

June 28, 2018

Let’s say you’re the local plumber who everyone knows and trusts. Your favorite restaurant calls with a toilet issue and needs it fixed pronto. However, they would like to give you a $250 gift card to the restaurant in exchange for your toilet fixing abilities. It seems like a pretty sweet deal so you agree to the arrangement and accept the gift card.

The week following, you take a couple of your employees out to lunch at this restaurant. After all, they’ve worked hard and you want to show them you took notice. You use the gift card to pay for the lunch ($75), crumple up the receipt and head back to work. No big deal right?

Not so fast.

You've entered into a bartering situation. Bartering (also known as trading), is the act of exchanging goods or services for other goods or services without money.

Accounting rules require you to capture all business transactions (including non-cash transactions, like bartering) in your financial data. How you might ask? The accounting is quite simply (it’s the tracking that gets complicated).

We suggest setting up a bartering clearing account in your chart of accounts. Let’s go back to the above example and walk through the accounting side of this transaction.

First, you would invoice the customer (to record the revenue) and issue a credit memo.

Accounts Receivable $250

Service Revenue $250

Bartering Clearing Account $250

Accounts Receivable $250

Then as you use the gift card, you would record the respective expense(s).

Meals & Entertainment $75

Bartering Clearing Account $75

If your system does not allow you to bypass entering a bill for an expense, enter the bill and issue a vendor credit.

Meals & Entertainment $75

Accounts Payable $75

Accounts Payable $75

Bartering Clearing Account $75

Once the gift card is used, the bartering clearing account should net to zero. The key to accounting for bartering is making sure you still record the income earned and expenses incurred. And remember to keep your receipts.

Bartering isn't a bad thing. However, you need to be cautious when entering into a bartering relationship. Track everything, even if no cash exchanged hands. 

If you need extra help or are confused about how to do this in your business, let us know

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