There may be a time and place in your business that you feel like you want to make a donation to someone. Be it whatever it is, the treatment is still the same.

If the grant is just given out without any further conditions, the amount given is your expense. At the time of the decision made you recognize an expense and a liability and when the payment is actually done, you just debit the liability and credit your cash account.

1. Making the decision

Debit Operating expenses 500
Credit Provisions / Other liabilities 500

2. Making the payment

Debit Provisions / Other liabilities 500
Credit Cash and cash equivalents 500

If the grant or donation is in any way tied to conditions or requirements, the first recognition is done in the amount that probably will be paid out. However, if it’s less than probable that the donation receiver will meet the conditions, the liability is not recognized. Other than that, the entries are the same.

Note here that your local tax legislation may also give you tax benefits from those payments, which in essence will be deductible from your corporate tax. There may be other tax benefits and also requirements as such, so please consult your local legislation or adviser for such treatments separately.