In kind donations are an important part of most non-profit organizations. Many organizations rely on donated goods and services to further their mission. It is important that these items are accounted for correctly. First, I want to answer the question “what are in kind donations” and then discuss how they should be tracked and accounted for.
what are in kind donations?
In kind donations are defined as any donation other than cash. This can include property, services, supplies, or other goods. Each of these also has a slightly different accounting implication. However, they all have one thing in common. Like cash donations, in-kind donations are all recorded as income to the organization. The value of the revenue is determined by the market value of items donated.
For property like buildings or computers, the value is a comparable price of what can be achieved in the normal market. For services, the value of the services is usually based on an hourly rate determined by the nature of the services. For goods or supplies, it’s the value of what they can be purchased for. The condition of both property and goods is taken into considerations when valuing the items. Usually a separate appraisal is not needed unless the item is over $5,000 and not easily determined. The other side of the transaction is where the in-kind donations differ from other donation transactions.
Let’s start with property donations. Property includes anything that is a non-perishable good. This includes items like physical property of buildings and land, computers, equipment, machines. As a general rule, items that would normally be classified as fixed assets were they to be purchased rather than donated. Like fixed assets, these items are capitalized and depreciated at the same rate as other fixed assets.
Services, on the other hand, are expensed when donated. This can include things like in-kind professional services like accounting or legal services. It can also include volunteer services for help with programs or events.
Each of these is valued as the appropriate hourly rate similar to what the cost would be in the market place. For example, hours donated by a volunteer passing out food at an event cannot be valued at the same rate as professional services that require specialty skills. Were an organization to pay for these services, the volunteer position would be a $10/hour job versus the professional service that typically charges $300/hour. Once valued, the hours and services provided would be recorded as in-kind labor expense like any other wage or professional fee.
Goods and Supplies Donations.
Other goods or supplies are also expensed when donated. Organizations not only need labor and assets to further their mission, but they also consume perishable goods. A common example is the donation of office supplies. These are goods that are consumed by an organization and are typically expensed when purchased. Like services, these items are expensed as in-kind supplies and expensed when received.
In-kind donations are very unique when it comes to accounting as the nature of the transactions are similar to both revenue and expense transactions.Written by: Ashley Peth TGG Accounting