Non-Profit Organizations and In-Kind Contributions - Accounting

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Organizations do not get cash donations only. Many times they get furniture, tool and other items that are valuable, but are not in form of cash, check or credit cards funds. These types of donations are thought about to be in-kind contributions. If an item is expensive, for example ,000 and over, a formal estimation 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 revenue tax returns.

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

Debit tool 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, normally costly 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 linked to donated services. Per accounting rules, only expert 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 expert services, then the time is accounted for using a cheap hourly rate. For example, a Cpa may furnish high level accounting services for free and an hourly rate of 0 would be reasonable. If an lawyer provides legal services normally billed at 0/hour, but charging the organization only / hour, the difference- 0- is thought about 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 expert could send the non-profit a note with his time spent. The organizations could send the expert a thank you note acknowledging his donated time. Note that services donated are not deductible in revenue tax returns.

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