Non-Profit Organizations and In-Kind Contributions – Accounting

Chicago Mba

Organizations do not get cash donations only. Many times they get furniture, equipment and other items that are valuable, but are not in form of cash, check or credit cards funds. These types of donations are considered to be in-kind contributions. If an item is expensive, for example ,000 and over, a formal appraisal may be needed, not just for accounting purposes, but for taxes as well. Often enough donors help to pay for the appraisals because they want the deduction in their income tax returns.

Donated in-kind contributions are booked as expenses and revenues. The journal entry is:

Debit Equipment expense-In-kind 3,000

Credit Donations- In-kind 3,000

Donated in-kind contributions can also be booked as a debit to assets, in the case of items that can be capitalized, usually expensive things. Depending on the assets, they can be depreciated. The journal entry then would be:

Debit Asset- In-kind 10,000

Credit Donations- In-kind 10,000

The other type of in-kind contribution is related to donated services. Per accounting rules, only professional services can be recognized. For example, if volunteers work at special events as ushers and receptionists, their time is not recognized by accounting. However, if a doctor provides services or a lawyer volunteer his time with professional services, then the time is accounted for using a reasonable hourly rate. For example, a CPA may provide high level accounting services for free and an hourly rate of 0 would be reasonable. If an lawyer provides legal services usually billed at 0/hour, but charging the organization only / hour, the difference- 0- is considered in-kind. The journal entry to book this contribution for 10 hours will be:

Debit Legal expenses – In-kind 1,700

Credit Donations- In-kind 1,700

In order to substantiate in-kind services, the professional could send the non-profit a note with his time spent. The organizations could send the professional a thank you note acknowledging his donated time. Note that services donated are not deductible in income tax returns.

Sheila Shanker CPA, MBA is based in Southern Califonia, a consultant with over fifteen years of solid experience with non-profit organizations. Her book, “Guide to Non-profits- From the Trenches” has received GREAT reviews at amazon.com. She writes online self study CPE courses and her articles have been published online and in national magazines, such as “Journal of Accountancy”, “Veterinary Economics”, “Architecture Business and Economics”, and “Teachers of Vision”. You can contact her at her website http://www.webshanker.com