What is a Nonmonetary Transaction
A nonmonetary transaction occurs when a business or commerce activity concludes without the transfer of money between accounts for parties tied to the transaction. Nonmonetary transactions can be something as simple as a change of address or can refer to more complex transactions in the financial sector. For example, a $0 deposit to initiate an automated clearing house transaction (e.g., direct deposit or auto-withdrawal) would be considered a nonmonetary transaction.
The even exchange of assets (e.g., transferring property or inventory) is a nonmonetary transaction. In cases of property exchange, the fair values of the underlying assets need to be determined, if possible.
BREAKING DOWN Nonmonetary Transaction
Nonmonetary transactions can be either reciprocal or nonreciprocal. Reciprocal (two-way) nonmonetary transactions involve two or more parties exchanging nonmonetary goods, services or assets. Nonreciprocal (one-way) nonmonetary transactions involve the transfer of goods, services or assets from one party to another, such as a business making an in-kind donation of employee volunteer time or physical items to another organization.
Issues with Nonmonetary Transactions
Naturally, nonmonetary transactions raise a host of issues surrounding the nature of a transaction or business relationship. It is not uncommon for ethical, moral and legal grey areas to be crossed when money is not directly tied to a transaction — which should be expected, seeing money is the most common medium of exchange.
A classic business expression applies here: there is no free lunch. Rarely is business as altruistic to expect one party to offer value to another, without expecting something in return. This expectation is not always money. For instance, in politics, which often is closely tied to business, politicians often accept or are parties to nonmonetary transactions. It is often far too tempting for a donor not to expect some favor in return.
Nonmonetary transactions beyond standard administrative transactions can quickly descend into a quid pro quo situation. The Latin expression is best summed up as "something for something." One party grows to expect something in return for a favor, which doesn't necessarily have to be monetary in nature.