Sometimes churches and nonprofits receive in-kind donations. Gifts in-kind are donations of items, use of property, and professional services. Accounting for those type of donations can oftentimes be confusing. See how to acknowledge and account for those donated goods and services...
In-kind donations are basically gifts of tangible and intangible personal property and donations of services.
There are typically three categories of in-kind donations. They are
Some examples of tangible gifts in-kind (physical goods that can be touched or held) include:
Some examples of intangible gifts in-kind (goods have value but do not have a physical presence) include:
Examples of use of property include:
Gifts in-kind can include professional services rendered by:
Now that we have established what a in-kind donation is, let's move on to "how and when" to record those donations!
Let me start out with saying EVERY nonprofit organization and church should have a written policy outlining their guidelines for accepting or NOT accepting in-kind donations. The rule of thumb usually is...if it cannot be used or sold, do not accept it.
As far as whether or not to record those gifts in your accounting records, a good rule of thumb is ...if it has value and would have been purchased by the nonprofit organization if not donated...it's a good idea to record the in-kind contribution.
For example, a donor donates a couple of computers and printers that the church will be using in the office. You can record the value in your fixed assets.
Your donation valuation method will depend on the in-kind gift. Since some of those valuation methods can get really detailed, I will give you a brief overview and provide links to more detailed articles regarding in-kind donation valuation below.
Donated goods received in bulk from retailers and manufacturers such as a grocery store donating canned goods to your food bank or a retail store donating backpacks to your outreach program...are usually the easiest to value as you can just use the wholesale value of the items.
Use of property donations such as reduced or free rent should be recorded and measured at fair market value.
Donated services are only recorded if:
Note: even though these specialized services can and should be recorded in your accounting, the IRS does not allow tax deductions for donated services, so a contribution receipt would not be issued (more on that below).
(Links to more detailed gift in-kind donation valuation methods are listed at the bottom of this article.)
How you record the in-kind contribution in your accounting records will depend on your accounting software. In most accounting systems, you will record the gift in-kind as a journal entry. However, you will need to first set up some new accounts in your chart of accounts...such as:
If you use QuickBooks:
Lisa London's book "Using QuickBooks Online" explains how to set up and record in-kind donations with journal entries and gives step by step examples. Let me stop here and encourage EVERY church or nonprofit that use or plan on using QuickBooks Online (QBO) to purchase Lisa's book and keep it beside your computer! It has hundreds of screen shots and step by step instructions on pretty well everything you need to do to make QuickBooks work efficiently for you. If you have the desktop QuickBooks version, see her QuickBooks for Churches.
If you use Aplos:
See Alex's great examples of journal entries for recording donated items.
Some in-kind contribution journal entry examples...
An accountant donates 5 hours a month to do some accounting work that your organization would have had to pay another accountant to do. She regularly charges $100 per hour to do a similar service. To record this gift in-kind you would:
A business donates a portable building valued at $12,000. Assuming that your organization has a policy to capitalize assets of this value, you would record this gift in-kind like this:
Another business donates an air conditioner valued at $800. Assuming that your organization has a policy to expense assets of this value, you would:
More examples of in-kind donation journal entries are in the article list at the bottom of this page.
In addition to recording the gifts in-kind in your accounting systems, it is appropriate to acknowledge the non cash contribution by generating a donor receipt. Unlike the recording of those donations, you should NOT (in most cases) include a value on a non cash contribution receipt. See an example of a non cash contribution receipt.
The exceptions to this rule include donations of vehicles, boats, and planes. The rules regarding those donations and donations valued at $500 plus can be found on the IRS's site. My ebook Handling Donations details how to handle and acknowledge those donations along with other uncommon contributions.
Note: the IRS does NOT allow charities to issue charitable contribution receipts for donated services! Donated services such as the accountant work discussed above is not a tax deductible contribution for the donor (Rev. Rul. 162, 1953-2 C.B. 127).
Also...you cannot issue a contribution receipt for discounted or free rent as the IRS has determined that rent free use of real or personal property does not represent a “payment” under IRC 170(a)(1)(Rev. Rul. 70-477, 1970-2 C.B. 62). BUT if the donor donated all or part of real property and transferred the title to the nonprofit, you could issue a noncash contribution receipt =)
References and Resources: