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Barter Transactions

Office of Origin: Financial Services
Date Adopted: 11-22-11
Date Reviewed: 01-15-12
Last Date Modified & Approved: 01-15-12

Direct Barter is a method of exchange by which goods or services are directly exchanged for other goods or services without using a medium of exchange, such as money. Direct Barter occurs on a oneon- one basis between businesses, individuals, suppliers, customers, distributors, etc.

Barter Exchange uses an organization that serves as a third party to coordinate barter transactions between members of the organization and that acts as a bank to keep track of the value of barter transactions and the value of each member account. It is against College policy to enter into any barter arrangement that involves a Barter Exchange; only Direct Barter transactions are permissible.

The main objective of all barter arrangements should be to provide the College with important financial, sales, or marketing benefits. It is against College policy to use barter arrangements for personal benefit.

In accordance with Internal Revenue Service regulations, the fair market value of the sale made as part of a barter transaction must be included in revenue. This “same-as-cash” standard also applies to the other side of the transaction – the fair market value of the goods / services provided is a deduction.

All barter transactions are also subject to Generally Accepted Accounting Principles (GAAP.)

To ensure compliance to these standards and regulations, no employee can enter into a barter transaction without approval of the area’s representative member of President’s cabinet and Vice President of Finance.

Detailed procedures are in place for approving, recording, and monitoring of barter transactions.

Before the entering into a barter transaction, the following should be considered:

1. Personnel involvement – Additional approvals and transactional controls are often necessary to protect the College’s assets during a barter transaction due to expiration dates, use and authorization, and contract monitoring.

2. Record management – The goods and services acquired in a barter transaction must be recorded, tracked, and expensed as they are used.

3. Lost cash – It may be necessary to forego additional cash sales in order to meet the barter obligation (ticket sales, rental space, etc.).

4. Uneven trade value – In some barter arrangements, one party may agree to exchange goods or services with a greater dollar value than the fair market value of the goods or services received. Such an agreement may effectively discount the remaining product/services, and could make it more difficult to make cash sales at standard prices.

5. Junk trades – Barter arrangements can result in acquiring goods for which the College has little or no use.

6. Budget consideration – Barter usage is an operating expense, and may reduce available budget for cash transactions.

7. Taxes – Depending upon local and federal tax laws, bartered goods or services could be subject to sales and income taxes, which are payable in cash.

Responsibility: Vice President of Finance

References:

  • Tax Equity and Fiscal Responsibility Act of 1982
  • Statement of Financial Accounting Standard No. 63
  • Accounting Principles Board Opinion No. 29, “Accounting for Nonmonetary Transactions”