Gifts In-Kind: The A, B and C’s of Properly Recording
Non-profit organizations receive many different types of support from donors, not all of which are cash gifts. However, when an organization receives gifts of goods or services, it can lead to questions as to how and when they are recorded.
What are Gifts In-Kind?
Basically, gifts in-kind are donations of tangible and intangible personal property and contributions of services made to a non-profit. Tangible gifts-in kind include clothing, furniture, equipment, inventory, and supplies, among other things. Intangible gifts in-kind include contributions of advertising, patents, royalties, and copyrights. Gifts in-kind can also include things such as discounted rent. Services provided include legal, accounting, plumbing, nursing, physicians, and other professional services.
When are Gifts In-Kind Recognized?
Gifts in-kind are recorded when a donor provides the item unconditionally and without receiving anything in return. For example, a donor gives medical supplies to a hospital. However, if the donated asset has no value and no alternative use, it should not be recognized in the financial statements. In this case, if a donor provides expired medicine to the hospital, the value of the medicine would not be recognized in the financial statements because it can’t be used or resold.
Donated services are generally recognized in the financial statements if those services (a) create or enhance a nonfinancial asset, or (b) require specialized skills, are provided by entities or persons possessing those skills, and would need to be purchased if they were not recognized. For example, if an accountant performs the bookkeeping services for a non-profit at no charge, the organization would need to recognize the value of those services as a contribution and related expense, because those services would need to be purchased if not otherwise provided.
Donated services that create or enhance a nonfinancial asset do not need to be specialized to be recognized, but those that neither create nor enhance a nonfinancial asset must be specialized to be recognized. For example, a hospital that has volunteers who read or provide company to patients would not recognize the value of those services as they are not specialized skills and would not need to be purchased otherwise.
How are Gifts In-Kind Recorded and Valued?
Gifts in-kind are recorded at fair value as contribution revenue and an asset or expense in the period received. Unconditional promises to give noncash items are also required to be recorded as contribution revenue in the period the promise is made even though the organization may not receive the asset or benefit until a future period. In this case, a corresponding asset would be recorded when the contribution is made and expensed in the period benefitted.
The fair value of a tangible asset, such as supplies, can be determined by using the price you would pay on an open market for the goods. For example, if a donor gives a carton of printer/copy paper to an organization, the organization could obtain the price for a similar carton of paper from an office supply store to record the value of the contribution and related asset/expense.
The fair value of services received could be obtained by determining the normal hourly rate for the service. For example, if an attorney donates eight hours for legal services, and her normal hourly rate is $150, then your organization would record $1,200 of contribution revenue and professional fees expense.
Some donors provide discounted goods or services to an organization. One example is rent at a reduced rate. In this circumstance, the organization would record the difference between the market rate and the rental rate paid as contribution revenue and rent expense.
What should be disclosed in the financial statements?
Non-profits that receive contributed services should disclose the activities or programs for which those donated services were used, the nature and extent of those services, and the amount recognized as revenue during the period. Also, organizations are encouraged to disclose the amount of donated services received, but not recognized as revenue. For example, an organization may choose to disclose the number of volunteer hours received during the year and their estimated value, even though those services could not recorded as revenue in the financial statements.
Are in-kind gifts reported on the 990?
In-kind contributions of tangible property are reported on the 990. In-kind gifts of property are reported as gifts, grants, contributions, or membership fees. If an organization receives more than $25,000 in non-cash contributions or receives contributions of art, historical treasures, or other similar assets, then the Organization must complete extra forms.
In-kind donations of services are not reported on Form 990, but the value of those services are shown as reconciling items on the 990.
For additional information please contact Lydia R. Miller at lrmiller@herbein.com.
Lydia R. Miller, CPA
lrmiller@herbein.com
412-392-2345
