Many nonprofits rely upon in-kind donations for their activities. Gifts “in-kind” are any donations to a nonprofit that are not cash. A good example is food collected and given to a food bank to distribute directly to others.
If your nonprofit relies heavily upon gifts in-kind for its activities and programs, this guide to accounting for and handling the financial aspects of in-kind donations will be invaluable.
Distinguishing In-Kind Gifts from Other Types of Donations
It is important to distinguish in-kind gifts from other types of donations. For example, items given to a charity in which the use is specified by the donor are not true in-kind donations. Neither are items given to the charity that are to be used by another entity.
An in-kind gift consists of a broad array of goods that may include:
- Computer hardware and software
- Office furniture
- Equipment such as saddles used in a therapeutic riding program
- Wheelchairs or medical equipment used by a charitable health program
- Food donated to a food bank
Such items are used directly by the organization or given to the people the charity serves.
Accounting for In-Kind Donations
Under GAAP rules, gifts in-kind should be recorded as revenue when received and also recorded as an expense. Recording them as revenue upon receipt means:
- Recording the revenue at “fair market value.” Fair market value reflects the average price that your organization would have paid for the item if you had to buy it.
- Recording the offset value, or the amount of revenue that is the corresponding value as an expense of in-kind good or services.
- Recording tangible property, such as land or buildings, as an asset to your organization.
Budgeting In-Kind Gifts of Services
One important consideration is the gift of in-kind services. If these services occur on a regular basis, they should be budgeted for in your nonprofit’s budget. For example, if your accountant donates her time to preparing the annual report, she should provide you with a receipt stating the value of the services rendered. You would then budget for that amount in your yearly budget. This way, if your accountant retires, moves, or simply chooses not to donate her services again, you are still prepared to pay the going amount for similar professional services.
Acknowledging the Gift and Providing a Receipt
As we’ve shared in a previous article on tax donation receipts, gifts should be recognized with both a thank-you note and a receipt. The receipt should be similar to those provided for cash gifts. An in-kind gift donation form created by your organization also provides a consistent record of all gifts in-kind and helps you record and track their value over time.
Create a Gift Policy
Lastly, it is a good idea to create a gift policy for your organization that lists the types of gifts accepted, how gifts in-kind are recognized, and how they are used.
Donors come in all shapes and sizes. Some prefer to give cash. Others want to give tangible property that they know can be put to good use. Gifts in-kind offer a valuable asset to your organization, one that should be recognized properly both in your accounts and in the donor’s taxes. With the right tracking and organization, you’re on your way to a solid in-kind donation policy and process that can help you handle these gifts with ease.
Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact Welter Consulting at 206-605-3113 for more information.