Announcement

Collapse
No announcement yet.

Donation of Services

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

  • Donation of Services

    Hi,

    What is the best way to register an invoice for a company that is doing our website maintenance, monthly, but we won't have to pay it because they are doing it as a donation.

    TIA

  • #2
    Credit as donation to Gift In Kind -- Web Site (or something similar)
    Debit as expense to same account. In other words, you recognize both the donation and the expense.

    Use the fair market value of the donated services.

    This shows donation which helps the organization recognize public support and is reported on the organization's tax return, although the donor does not get a tax deduction.
    Lorin Browning, Ph. D.
    Fellow -- National Tax Practice Institute

    Comment


    • #3
      Originally posted by Lorin Browning View Post
      Credit as donation to Gift In Kind -- Web Site (or something similar)
      Debit as expense to same account. In other words, you recognize both the donation and the expense.

      Use the fair market value of the donated services.

      This shows donation which helps the organization recognize public support and is reported on the organization's tax return, although the donor does not get a tax deduction.
      Thank you!

      Comment


      • #4
        I would like to learn more from this helpful answer.

        In this example (of donated web development) with the "Gift In Kind -- Web Site" account, what are the journal entries?

        Thank you.

        Regards,

        DG

        Comment


        • #5
          A follow-up would be: In the example, is "Gift In Kind -- Web Site" an asset account or an income or expense account?

          Thank you.

          DG

          Comment


          • #6
            It is two different accounts with the same name: One to record revenue; one to record expense.

            One is in the Gifts in Kind revenue section of the chart of accounts; the other is in the Gifts in Kind expense section of the chart of accounts. In other words, for whatever kind of non-cash donations, there are appropriately named accounts in the Gift in Kind revenue section and in the Gift in Kind expense of the chart of accounts.

            Two comments: Gifts in kind services to be included in the financials have to be professional services provided by a specialist in his or her area of expertise. An attorney can provide free legal services which is recognized as revenue and is also recognized as an expense by the not for profit. An attorney working in a food pantry, for example, is simply a volunteer and no value is attached to his or her time spent as a volunteer.

            An attorney cannot take a tax credit for his freely provided legal expertise. In other words, the legal firm does not recognizes income or expense for his pro bono services.

            Note that in your example, what is being provided is monthly or periodic maintenance for the web site. If the donor was the designer of the web site, then you would have a slightly different situation since the donation would be the web site as an asset which, like an expense, is also a debit entry. In this case, there would be a debit entry for the Statement of Financial Condition (not-for-profit speak for Balance Sheet).
            Last edited by Lorin Browning; 04-01-2019, 10:21 PM.
            Lorin Browning, Ph. D.
            Fellow -- National Tax Practice Institute

            Comment


            • #7
              Lorin,

              I believe I understand what you are saying, but just to clarify the last part about the specific case of the donator of services also having been the creator of the web site (an asset).

              In that case, the original creation of the web site would add an asset and a comparable revenue. That is, it would increase the net asset value of the firm, right? This is in distinction to the maintenance donation which, so far as net asset value is concerned, is a wash (with simultaneous equal revenue and expense postings).

              Thank you for your clear explanation.

              I am not the original thread starter, but you pointed out a very significant thing in your explanation about the requirement for professional services.

              Our organization is a community band. Our purpose is to provide wind ensemble performances in our community. So, we do 4 - 6 concerts per year in our town. Occasionally, we bring in guest artists (an outside conductor, or additional players to cover special parts for which we lack sufficient local expertise).

              Sometimes, band members or even members of the community, provide housing and/or meals for the several days that a guest artist may be in town. This is very valuable to the band because hotel/motel accommodations in Alaska are very expensive-- especially in the summer-- and, if housing is not donated, we need to pay out actual cash to buy it.

              I'm thinking that this donation (donated housing) is a gift in kind. But, if it is a service, then maybe it "wouldn't count" because it isn't a professional service. But, is it a product? Can we record it as a gift in-kind revenue and expense?

              Thank you.

              DG

              P.S. One other thing. Are you permitted to say here whether you are available to provide professional consulting services?

              Comment


              • #8
                The following may be helpful, especially if you follow some of the links:

                https://www.nationalservice.gov/site...chapterid=2271

                I don't think one could get away with treating the donated housing arrangement as you describe it unless the donor was in the business of renting rooms.

                My wife and I work with several local not-for-profits, contributing my services to help with their accounting departments or with the preparation of their tax returns. Some do record what I do as gift-in-kind donations, especially those financials are subject to audits to determine their conformity with Generally Accepted Accounting Practices for public charities.

                What some 501(c)(3) charities do not realize that fund accounting has been "outlawed" by FASB since 1992 and that the auditor must re-cast the financials to not be based on fund accounting.

                The first large client we did this for pleasantly discovered that its audit fees dropped by several thousand of dollar the first year. FASB updated some of its standards for 2018 and we showed the 501(c)(3) how to reflect those changes in their financial statements. NOTE: IRS still accepts fund accounting for tax purposes; FASB does not.

                If you need further help, please free to post your questions to this forum or you can e-mail me at lorin@lorinbrowning.com.
                Lorin Browning, Ph. D.
                Fellow -- National Tax Practice Institute

                Comment


                • #9
                  Very informative and interesting.

                  That, perhaps, explains why someone suggested to me that I set up separate In-Kind accounts: GAAP and Non-GAAP. (The band has been in existence for decades, but only recently became somewhat formalized, and I am starting from scratch-- working on chart of accounts right now.)

                  We're a completely miniscule organization (no employees, and annual budget < $10K), but I'm trying to "play by the rules", anyway. I guess it's the anal-retentive in me. (I am an engineer by education, and also have an MBA-- which means I know just enough about accounting to realize how much I don't know [especially concerning nonprofits], and possibly be dangerous! For example, a couple months ago, I was totally ignorant concerning functional expenses. Quickbooks classes looks absolutely golden for that.)

                  Anyway, thank you.

                  DG

                  P.S. But, it does seem strange that someone could give us a bucket of money to use to provide guest housing, and it would be recorded-- contribution account and an expense account. But if they actually house a guest (in the summer $500 for 2 nights), it means nothing. But, we do want that kind of information recorded for our internal use (analysis of which concerts "pay their way" and which cost us, and how much, etc). Almost like we need to keep two sets of books.

                  Comment


                  • #10
                    I just realized how rude I've been.

                    I apologize to petunia13, the OP, for hijacking the thread.

                    DG

                    Comment


                    • #11
                      @ DG

                      I've been reading this thread, mostly cause I am not the expert that Lorin is, and I always learn from his responses. You have not hijacked the thread, it has stayed on point, and I'd thank you (& Lorin) for the in depth conversation your post created.

                      You said, " But, it does seem strange that someone could give us a bucket of money to use to provide guest housing, and it would be recorded-- contribution account and an expense account. But if they actually house a guest (in the summer $500 for 2 nights), it means nothing."

                      That is a person doing something for another person, a favor with no cost, since as Lorin pointed out they are not in the motel business.

                      Several companies around here that are required to follow GAAP do keep two sets of books, in their view it is cheaper than paying someone at tax time to work out the adjustments needed to file taxes.

                      Comment

                      Working...
                      X