Many non-profit organizations accept gifts-in-kind or contributions of tangible and intangible personal property. In most cases, to properly record the receipt of these items or services, the entity would record a debit to the applicable asset account or gifts-in-kind expense and a credit to gifts-in-kind revenue/contributions.
However, there are cases the entity should not record the receipt. For example, if the donor requests the materials or services to be passed from one organization to another, the first organization may not be allowed to record the income or expense of gifts-in-kind. The deciding factor in this case is whether or not the nonprofit organization has the discretion to choose which entity becomes the final beneficiary.
If the nonprofit organization is acting as an agent or intermediary whereas it does not control the final destination of the goods or services, the entity has two accounting policies it can choose from to properly record the transaction. It may either report the receipt of the goods or services as an asset and concurrent liability to the beneficiary or not report the transaction at all. In this circumstance, the entity must apply the accounting policy consistently from period to period and must disclose the policy in the notes to the financial statements. Agency transactions such as this can also occur with cash transactions.
On the other hand, if the nonprofit organization has the control or variance power to choose which organization will receive the gifts-in-kind, the entity will record the gifts-in-kind when received and distributed. When the gifts-in-kind are received, the entity would record a debit to assets and credit to gifts in-kind revenue. In turn, when the gifts-in-kind are distributed, the nonprofit would recognize a debit to distributions expense and credit to the applicable asset account.
As each situation is unique, please contact us for information on how to properly record noncash contributions for your nonprofit organization.