Bartering Services: Is it Income?

Bartering ServicesMany times I have clients ask me how to handle bartering when doing their bookkeeping (and sometimes ask if they even have to enter anything in their accounting to track those transactions). Bartering is when businesses trade services with each other rather than paying for them.

What you must know about bartering is that although money is not exchanged, both businesses must count the value of the services they offer as income. So how do you do this if you aren’t paying, nor are being paid, for services? What I recommend is to enter transactions like you would if you were charging your customer and paying your vendors for invoices. Create an invoice for your customer and create a bill for the services you receive. I’d create a “bank” account called barter. Receive a payment from your customer in the amount of the invoice, and have that deposit into the barter account. Go to pay bills and mark the invoice to be paid from the barter account. This works well if the amounts you are bartering are the same.

Many times amounts being bartered are not the same, and this can complicate the accounting of the trade. This is one reason why I recommend that businesses actually pay each other even when trading services. It also prevents the unfortunate event where one business provides services but never gets what they expected in return (unfortunately it does happen).

If you choose to barter services, make sure you track everything properly in your accounting so that you claim it as income and pay any required tax. And remember, if your purchase is business related, you’ll have the write-off for that as well, so accounting for it properly won’t hurt you a bit!