How to Document Goods and Services Donated to Your Nonprofit
Some nonprofit organizations benefit from donated goods and services rather than, or in addition to, contributed and earned cash. Suppose that a local business provides office space for your organization so you don’t have to pay rent, 50 volunteers contribute labor to your organization each week, and a major advertising firm sponsors a free marketing campaign to promote your work. These gifts of goods and services are called in-kind contributions.
How can you show these valuable resources in your organization’s budget? First, make the effort. If you don’t show these contributions, your budget doesn’t truly represent the scope of your organization, and you’re underplaying how much the community values its work. On the other hand, mixing the in-kind materials and services with the cash can make following and managing your budget confusing.
So what’s the solution? You can create in-kind subheadings within the budget or summarizing all the in-kind contributions at the end of the cash budget in a separate section.
If you choose to use subheadings and include in-kind items alongside the cash in your budget, don’t forget that when you receive an in-kind good or service, it’s a source of income, and when you make use of it, it’s an expense. Often nonprofits fail to show the expenditure of an in-kind contribution, and it can make their budget appear to have more available cash than it really has.
You’ll want to keep records of volunteer time if you’re going to include it in your budgets or financial reports.
Generally accepted accounting principles (GAAP; a framework outlining standards and rules for accounting) say you should show the value of volunteers’ time in your financial statements if they improved a financial asset of the organization or if the organization needed a task to be performed that required a special skill, the volunteer had that skill, and the nonprofit would have paid for that help if it had not been volunteered.