The 501 S(c)ene

The latest view on not-for-profit accounting issues

When to recognize donated services and how much should you recognize

internal risk assessment, internal controls, nonprofit, fraudWhen most people think of in-kind donations their first thought might be to think of tangible goods. Tangible goods can be things such as vehicles, clothing, books and so on. With a physical transfer of assets, knowing when to recognize the contribution is simple. But what is not quite so simple is recording the other type of in-kind donations, which is donated services. Donated services can often go unrecorded as they are provided over time and they may not always be noted as a donation in the first place.

There are various services that can be provided that should be recognized. When a service that requires a special skill is provided free of charge this is an indicator that service may need to be recorded.  A specialized skill can be described as a skill that is generally not possessed by the public and takes specialized training to acquire. Typically, the person providing the service will have a license or certificate that was obtained. Examples would be attorneys, CPAs, doctors, electricians, etc.

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Another point to remember when deciding whether it is correct to recognize donated services is determining if the organization would have needed to purchase the service had it not been provided for free. A CPA who sits on a board of directors and reviews financials would not be an example of a donated service. The organization would not have hired them to review the financials otherwise so it should not be recorded. On the other hand, if a CPA donated their time to prepare the 990 for that organization, the value of that service may need to be recorded as income because if the CPA did not donate their time the organization would have had to pay for a different person to prepare the 990.

Another type of donated service is where the service has either created or enhanced a non-financial asset.  An example is with volunteer time in building homes with the guidance of a contractor. While the people volunteering may not be professional, the time they are contributing is creating a non-financial asset and therefore, the value of that time should be recorded.

After knowing when to recognize a donated service, the next step is knowing what amount to recognize. For professionals, the amount to recognize should in most cases, be based on their normal rates and the number of hours contributed.  This information can come directly from the donor. It is also important to note when services are provided at a discount that is more substantial than normal. The difference between the normal rate and the discounted rate should be recognized as in-kind income if it meets the other requirements described above.

For volunteers who are not performing professional services, their time should be recognized at a rate that equals the value provided. A lawyer who volunteers to help build a home should have their time recognized at the rate of a normal worker and not at the rate they bill for legal services.

As always, we are here to help. Feel free to contact us with any questions.

Tyler Croisdale