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Be “In-Kind”: Nonprofit accounting for donations of property and services

Posted Dec 15, 2014

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hand nonprofit treeMost non-profit organizations receive some forms of non-cash gifts including both tangible property (furniture, equipment, clothing, stock, supplies, etc.) and personal services (legal, healthcare, accounting, maintenance, volunteer, etc.). These donated goods and services are referred to as in-kind contributions. Recording these non-cash gifts allows the NFP to fairly present the types of contributions it receives in order to fulfil the mission of the organization. Even though in-kind contributions are important sources of revenue for some NPFs, recording in-kind contributions can present some accounting challenges. Typical problems involve difficulty in determining fair market value and personnel’s lack of awareness of how to record the donations.  Here are some brief pointers to help you in this area.

General Requirements:

Generally, GAAP requires NPF recipients to recognize in-kind contributions at fair market value on the date of donation. Before recording revenue for any type of in-kind donations, your organization must determine if you have “discretion” in using or distributing such gifts. Discretion, or variance power, is broadly defined as the right to choose the beneficiaries of the asset transferred. If your organization simply acts as an agent or intermediary, a liability should be recognized instead of revenue.

  • Non-capital in-kind donation: Typical in-kind donations consist of supplies to be used for programs or for everyday business. When supplies are received, revenue and expenses should be recognized at fair market value. These are items that the NFP would typically purchase themselves for operations had the item not been donated. Fair market value of supplies can be obtained directly in open market, for example, from local retailers if goods are new, and from secondary market such as Ebay, or Amazon if goods are used.
  • Capital in-kind donation: Similar principal applies to a capital asset donation such as building or equipment – to record the revenue and capitalize the asset at FMV on the date received. Remember to take into account donor imposed restrictions when recording in-kind contributions. Donors may specify how long the asset can be used, or may stipulate the purpose for which assets must be used. In these circumstances, your organization should record the asset and the revenue in appropriate classifications to reflect purpose, and time restrictions.
  • Donated services: Decision whether to record donated services is based on the nature of the services received. The keys to recognizing in-kind revenue from professional services are 1) if the services create or enhance nonfinancial assets OR 2) if the services require specialized skills. Common types of specialized services that should be recognized include lawyers, accountants, IT consulting and property maintenance. Volunteer hours that do not require specialized skills, for example janitorial or event setup, should not be recorded as in-kind revenue.

Financial Statement Disclosure:

  • For a donation of goods, the financial statement notes should the nature of goods received, the fair market value of the gift, and valuation method used.
  • For contributed services, the notes should identify the nature of the services received, their fair value, and the amount allocated to program services if any.

For more detailed information on how to record specific types of in-kind donations, please refer to ASC 958-605-25.

Sources:

As a general disclaimer, the information provided above is very general and broad in nature, is not represented as complete, and may not apply to taxpayers’ individual situations. We advise all taxpayers to consult a professional advisor regarding their own specific needs. 





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