How to Account for In-Kind Donations
Introduction
An in-kind (gift in kind) contribution is non-cash support given to a not-for-profit organization (NPO) in support of the NPOs mission. In-kind contributions can be difficult to accurately record and report. This article will describe how to record and report the more common in-kind contribution transactions. I will cover the following topics.
How to record in-kind contributions on your ledger.
How to report in-kind contributions on Form 990 to the Internal Revenue Service (IRS).
Create in-kind contribution transaction policies.
References
How to record in-kind contributions on your accounting ledger
In-kind contributions are generally in the form of goods and services. Accounting for the contribution of goods is relatively straight forward. Goods received as in-kind contributions are generally recorded at fair-value and will increase the relevant asset account balance.
Example: A fictional NPO, Conservation Ledger, receives two chainsaws as a contribution from a local hardware store that wants to support Conservation Ledger’s mission. The chainsaws are new and are valued at $1,500 each. The total contribution is $3,000.
Example journal entry that records an in-kind contribution of goods.
Example: A fictional NPO, Conservation Ledger, receives mapping services at $0 cost from a local cartographer who supports the mission. The fair-value of the services is $2,200.
Example journal entry that records an in-kind contribution of services.
IRS Form 990 reporting for in-kind contributions
There are many details that you must stay aware of when importing in-kind contributions. Two important topics are valuation methods and the contribution of services.
Valuation Methods: How you value in-kind contributions could have a significant impact on your financial statements and tax filings. Pay close attention to where a Generally Accepted Accounting Principle (GAAP) calculation may create an incorrect filing with the IRS.
Contribution of Services are generally included in revenue for NPOs with an accompanying expense entry. Pay attention to IRS instructions on the Form 990 for revenue. Generally, the IRS does not want service contributions, or the related expenses, included in filings. This will mean that your chart of accounts and transaction processing will need to be structured to facilitate the identification of revenue types so they may be excluded from IRS filings, where appropriate.
In-kind contribution accounting policies
NPOs that accept in-kind contributions should create and adopt policies and manuals that govern how the organization with treat and process in-kind contributions. Some of the critical elements of those policies are listed below:
Capitalization thresholds for in-kind contributions of fixed assets and real property
Valuation methods for contributed assets and services
Documentation methods and requirements
Accounting system processes for recording of in-kind contributions
References
IRS Publication 526 (Charitable Contributions)
Financial Accounting Standards Board (FASB) Accounting Standards Codification 958-605-30-1