Nonprofit In-Kind donations add value to the bottom line and can be the most important resource for some nonprofits.
The lifeblood for some sustainable nonprofits is securing cash donations, but gifts from donors come in many forms. If your nonprofit receives in-kind contributions, it is important to understand their value and how it impacts your nonprofit’s finances. In-kind contributions are donations of goods, services or time, instead of cash.
Treat In-Kind Donations As Revenue
Under Generally Accepted Accounting Principles (GAAP), all contributions received should be recorded as revenue upon receipt, including in-kind contributions. Contributed goods or services received should be recorded if those services create or enhance non-financial assets, or require specialized skills and are provided by individuals possessing those skills.
In-kind gifts can be valuable if donated items are integral to your organization’s mission, such as providing clothing for the homeless, or food for a food pantry. In-kind services are also important if the services provided would normally have to be paid for, such as legal or accounting work.
What Are In-Kind Donations
It is important that these goods and services are recorded in your financial records as both revenue and expenses.
- The revenue is recorded using the fair market value of the gift.
- Fair market value is the price that you would pay for the goods or services, if you had to pay for the items.
- When recording the in-kind contribution, the offset to the revenue amount would be the corresponding value as an expense of in-kind good or services.
- If the goods received is tangible property that is held by your organization, then the value must be recorded as an asset, such as stocks, equipment, building or land.
When reviewing financial statements and planning for the future, the value and cost of in-kind contributions must be considered, if those contributions, or equivalent expenses are necessary to fulfill your mission. For example, if an accountant donated his services to prepare your annual IRS 990 and the value of that service is $1,000, you must budget that cost in the next fiscal year, in case you have to pay an accountant and not rely on an in-kind contribution.
The same is true for goods received that is part of your mission, such as food donated for your community kitchen. If you received $25,000 in donated food, that expense must be included in your budget, to identify the resources needed for the community kitchen program to be sustainable.
Properly Document Receipt of In-Kind Donations
It is important when receiving in-kind contributions that you acknowledge the gift by providing the proper documentation, or receipt to the donor.
- Your organization should create a policy related to the acceptance of in-kind contributions.
- You can create an in-kind contribution form to standardize the process of recording, reporting and acknowledging gifts.
- The form should include a detailed description of the gift, the date the gift was received, the donor’s contact information and the estimated fair market value of the gift and how the value was determined.
Finally, you must evaluate the impact of receiving in-kind contributions. It is not worth it to accept in-kind goods from donors, if the goods cannot be used to further your mission.
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