More businesses are utilizing barter transactions, in which they trade their products and services for other products and services. Many businesses wrongly assume they don't need to account for these transactions. Accounting for bartering transactions is required by the Internal Revenue Service.
When you barter for other goods and services, you are still investing time and resources to sell the item you are trading. Not accounting for barter transactions is the same as not accounting for revenue and expenses. You could not measure how well your business is performing if you can't produce accurate financial statements.
When you barter, two transactions occur: you sell something and you buy something. You must value the transaction at the fair market value of the item you are receiving. In most cases, the fair market value is already known-it's the normal sale price of the item. The sale of your goods or services is valued at the purchase price of the goods you are receiving.
If the item you are receiving is for a valid business expense, you will record it just as you would if you had paid cash. Instead of cash, you paid with your goods or services. Consult your tax attorney for advice.