When you trade goods or services from your business to another for something, an exchange of value occurs, that exchange is accountable and might be taxable.

Bartering is at fair market value, not cost, for accounting and tax purposes.

If you look at it as selling something and then getting payment it makes the whole process easier to understand, at least it does for me.

First you need to set up a bank account called Barter or something like that to track the bartering value.

Then you need an item to track the barter income (what you receive in trade, the payment).
Bring up the item list, select new at the bottom, and select ‘Payment’

* In the item name enter something like barter payment

* In the ‘Payment Method’ block use the drop down arrow and select ‘New’
* In the method window enter the name ‘Barter’
* In the Payment type block select ‘Other’
* Click OK

* Click the radio button ‘Deposit To’ and select the barter bank account.
* Click OK

Now if you use a Sales Receipt QB will throw up a warning window telling you that you can just select the barter payment method rather than putting the barter payment on a line. DO NOT do that, tell QB not to show that message again. When you do that QB sends the barter payment to Undeposited Funds rather than the barter bank account. When you go to deposit the undeposited funds, you have to remember to select the correct bank account. There is just too much chance of a clerical error. It is so easy to deposit the barter funds (which do not exist in real life) to your regular bank account when depositing other funds. And a month later when you reconcile there will be a problem.

Why QB thinks this ends the process is beyond me, but then again it is in keeping with other things they do.

If you follow those instructions the income from the barter transaction is realized – no problem. When you pull a P&L for this transaction you will see that the cost of the trade is in COGS, and the income realized is in the income section. So understand that you ARE going to be taxed on the difference between the cost of the items traded and the fair market value of the other companies trade.

But suppose, as in QB’s example, you traded inventory for advertising .You need to enter the advertising expense. Bring up the barter bank account register and enter a “check” payable to the advertising company and select the advertising expense account. The check should be for the full amount of the trade you made.

So to explain this ….. the way I finally figured it out … let’s forget for a moment we are trading.

1. I sell an item which costs $50 for $100. That gives me a $50 profit.
2. Then I buy advertising for $100, that gives me an expense of $100.
3. The P&L will show gross income $50, expenses $100, for a loss of $50.