In the world of accounting, every transaction must be recorded properly to maintain accurate financial records. When a business donates goods for charity, it is essential to pass the correct journal entry to reflect the transaction. The “goods given as charity journal entry” helps a business record the reduction in inventory and recognize the charitable expense. This entry ensures that both the financial position and the profits of the business are presented fairly. Proper accounting for charity donations also supports transparency and fulfills legal and audit requirements.
What is Goods Given as Charity in Accounting?
Businesses sometimes give away goods for free to poor people or to NGOs. This is called giving charity. When goods are donated, not money, we use a special accounting treatment.
Charity means helping others without asking anything in return. If a business gives its products for charity, they reduce their stock. So, the stock value goes down. But this is not a sale. So, there is no income.
In this case, we need to record:
- A decrease in stock (this is called purchase or inventory account)
- An increase in charity expense (to show we spent something for charity)
This is a simple concept but very important for proper accounting.
Goods Given as Charity Journal Entry
When you give goods as charity, you need to pass a journal entry in your accounting records. This helps you track the use of your business stock.
Format of Goods Given as Charity Journal Entry
Here is how you write the journal entry:
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
| xx/xx/xxxx | Charity A/c Dr.To Purchases A/c(Being goods given away as charity) | xxxx | xxxx |
This journal entry shows that you debit the charity account (because it is an expense) and credit the purchase account (because stock is going out).
Example:
A shopkeeper gives ₹2,000 worth of clothes to an orphanage.
Journal Entry:
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
| xx/xx/xxxx | Charity A/c Dr.To Purchases A/c(Being goods given away as charity) | 2,000 | 2,000 |
Why Is This Entry Important?
- It keeps track of business stock.
- It helps in calculating actual profit.
- It shows how much the business spends on charity.
Accounting Treatment of Goods Given as Charity
Accounting treatment means how we record and manage the data in books. Giving goods to charity affects two main accounts.
Charity Account
- This account shows the money value of help given.
- We treat this as an expense.
- We debit this account because expenses always increase on the debit side.
Purchase or Stock Account
- This shows the goods the business owns or bought.
- When goods go out, we reduce this account.
- So, we credit it.
Points to Remember
- Never treat this as sales.
- Always record at cost price, not selling price.
- This affects the profit calculation at the end of the year.
Goods Distributed as Charity and Its Effect on Final Accounts
The final accounts show how well the business did. If you don’t record charity goods correctly, your profit will look wrong. It may even affect tax calculation.
Impact on Trading Account
- Purchases reduce because you credit the purchase account.
- This shows that some goods did not earn income but also did not cause loss.
Impact on Profit and Loss Account
- Charity expense is added to P&L.
- This reduces profit because you spent goods without getting income.
Example Table:
| Account | Affected | How It Is Affected |
| Purchases A/c | Credited | Stock reduced |
| Charity A/c | Debited | Charity treated as expense |
| Trading A/c | Reduced | Goods not shown as sale |
| Profit & Loss A/c | Debited | Shows less profit due to charity |
When goods are given as charity, your profit goes down. But your records stay clean and honest. This is good for tax and audit purposes too.
Relevance to ACCA Syllabus
The ACCA syllabus places strong focus on Financial Accounting and Reporting (FR & SBR papers). Understanding how to record non-revenue transactions like charity, and their impact on profit/loss and stock, is crucial for preparing true and fair financial statements under IFRS. Such entries also tie into ethical responsibility and financial transparency for businesses.
Goods Given as Charity Journal Entry ACCA Questions
Q1. What is the correct journal entry when goods are given as charity?
A) Sales A/c Dr., To Cash A/c
B) Charity A/c Dr., To Purchases A/c
C) Purchases A/c Dr., To Charity A/c
D) Stock A/c Dr., To Charity A/c
Ans: B) Charity A/c Dr., To Purchases A/c
Q2. In final accounts, goods given as charity are shown as:
A) Increase in revenue
B) Asset
C) Expense in P&L
D) Liability
Ans: C) Expense in P&L
Q3. Which side of the trial balance will the charity account appear on?
A) Debit side
B) Credit side
C) Both sides
D) Not included
Ans: A) Debit side
Q4. When goods are given as charity, the value should be recorded at:
A) Market price
B) Cost price
C) Retail price
D) Discounted price
Ans: B) Cost price
Relevance to US CMA Syllabus
In the US CMA Part 1 (Financial Planning, Performance and Analytics), candidates learn about expense classification, inventory management, and internal controls. Recording transactions like goods given as charity ensures accurate cost allocation and ethical financial presentation—especially important for budgeting and variance analysis.
Goods Given as Charity Journal Entry US CMA Questions
Q1. Which account is affected on the debit side when goods are donated?
A) Cost of Goods Sold
B) Charity Expense
C) Inventory
D) Deferred Revenue
Ans: B) Charity Expense
Q2. In cost accounting, charity donations of goods should be:
A) Treated as abnormal loss
B) Included in cost of sales
C) Recorded as overhead
D) Treated as period expense
Ans: D) Treated as period expense
Q3. Donating goods affects which of the following?
A) Equity and revenue
B) Inventory and expenses
C) Fixed assets and liabilities
D) Income and assets
Ans: B) Inventory and expenses
Q4. What is the primary purpose of recording charity in cost terms?
A) Increase net income
B) Reduce tax expense
C) Show ethical business practices
D) Avoid audit penalties
Ans: C) Show ethical business practices
Relevance to US CPA Syllabus
In US CPA (Financial Accounting and Reporting – FAR), proper classification of expenses, such as charitable donations in kind, reflects ethical compliance and transparency. Candidates must understand how non-cash transactions impact financial statements, internal controls, and audit readiness.
Goods Given as Charity Journal Entry US CPA Questions
Q1. Goods donated to a non-profit should be recorded by the business at:
A) Fair value
B) Cost basis
C) Sales price
D) Nominal value
Ans: B) Cost basis
Q2. Which principle supports the entry for goods given as charity?
A) Matching Principle
B) Revenue Recognition
C) Historical Cost
D) Consistency
Ans: A) Matching Principle
Q3. Donating goods impacts which two accounts in financial records?
A) Assets and liabilities
B) Revenue and gains
C) Purchases and expenses
D) Purchases and charity
Ans: D) Purchases and charity
Q4. From a CPA perspective, donations in goods require:
A) No entry unless taxed
B) Disclosure in footnotes only
C) A journal entry and supporting documentation
D) Capitalization as fixed assets
Ans: C) A journal entry and supporting documentation
Relevance to CFA Syllabus
In the CFA Level I Financial Reporting and Analysis (FRA) section, candidates study how different kinds of expenses and inventory changes affect income statements and ratios. Understanding goods given as charity helps in analyzing operational efficiency, expense classification, and inventory turnover ratios.
Goods Given as Charity Journal Entry CFA Practice Questions
Q1. When analyzing a company’s income statement, charity goods would be classified as:
A) Capital expense
B) Operating expense
C) Other income
D) Deferred liability
Ans: B) Operating expense
Q2. What is the effect of recording charity goods on gross profit?
A) No effect
B) Gross profit increases
C) Gross profit decreases
D) Only net income changes
Ans: C) Gross profit decreases
Q3. Which ratio may change due to charity of goods?
A) Return on Equity
B) Quick Ratio
C) Inventory Turnover
D) Debt-to-Equity
Ans: C) Inventory Turnover
Q4. Charity given from inventory affects:
A) Financing activities
B) Investing activities
C) Non-operating expenses
D) Core operations
Ans: D) Core operations
