To Record or Not Record Donated ServicesPosted on August 13 2013 by admin
There are only certain situations when the value of donated services should be recorded in the financial statements as income. One of those situations is when the services create or add value to a “non-financial asset”, such as when a building is constructed. In that case, any donated services relating to that construction would be recorded as income and capitalized to the asset. This is regardless of whether or not the services provided are professional or specialized skills.
The other situation where donated services should be recorded is when three criteria are met: (1) the service requires specialized skills; (2) the service is provided by people who possess those skills; AND (3) the service would typically need to be purchased if it wasn’t being donated. There is sometimes some confusion with the second of these criteria- when can we say that the person providing the service possesses the specialized skills? What if extensive training is provided at the nonprofit organization to the volunteers? Does that training result in those volunteers having the specialized skills so that the income and expense should be recorded?
The answer is generally “no”. For volunteers to have the specialized skills that are required in order to be recorded as donated services, they generally would need to possess some type of certification or license in that skill area. For recording purposes, specialized skills usually would be those provided by accountants, lawyers, bankers, investment advisors, architects, doctors, carpenters, plumbers, etc. Individuals with the skills in using technical tools or specialized equipment or possessing specific artistic talent also may qualify as possessing specialized skills where donated services in these areas would be recorded as income.
By Colette Kamps, CPA
Our Not-For-Profit niche is a strong team of experienced professionals who focus their work in the not-for-profit industry. Henry & Horne has been a stable local firm in Arizona for 55 years, and the Not-For-Profit niche has a long history of working with charitable organizations and other tax exempt organizations of all kinds. Our focus is exceptional client service and building relationships with our clients to promote communication throughout the year, not just at the time of the annual audit. We highly value and are very proud to be helping those who help others.
Before posting a comment on a blog post please be aware that we do not give free advice to non-clients by email, comment response, or phone. Thank you!
- Pump the Brakes! Did We Really Meet the Restriction of that Donation?
- Potential Nonprofit Accounting Changes?
- Why Shouldn’t We Accept All Donations?
- Healthy Skepticism: Hiring a Professional Fundraiser
- IRS Tax Exempt Priorities for 2016
- A Little-Known Element on the Form 990
- How to Account for Donated Auction Items
- The Burk Donor Survey
- Involvement of Nonprofit Board of Directors
- Internal Control Policies Reported on the 990