Donated in-kind contributions are booked as both expenses and revenues. The journal entry is:
Debit Equipment expense-In-kind 3,000
Credit Donations- In-kind 3,000
Donated in-kind contributions can also be booked as a debit to assets, in the case of items that can be capitalized, usually expensive, such as donation of costly computer servers.. The journal entry then would be:
Debit Asset- In-kind 10,000
Credit Donations- In-kind 10,000
Capitalized assets are often depreciated over the useful life of such asset.
The other type of in-kind contribution is related to donated services. Per accounting rules, only professional services can be recognized. For example, if volunteers work at special events as ushers and receptionists, their time is not recognized by accounting. However, if a doctor provides services or a lawyer volunteer his time with professional services, then the time is accounted for using a reasonable hourly rate. For example, a CPA may provide high level accounting services for free and an hourly rate of $150 would be reasonable. If an lawyer provides legal services usually billed at $200/hour, but charging the organization only $30/ hour, the difference- $170- is considered in-kind donation. The journal entry to book this contribution for 10 hours will be:
Debit Legal expenses - In-kind 1,700
Credit Donations- In-kind 1,700
In order to substantiate in-kind services, the professional could send the non-profit a note with his time spent. The organizations could send the professional a thank you note acknowledging his donated time. Note that services donated are not deductible in income tax returns.
Overall, nonprofits should have policies and procedures to define in-kind contributions, what should be expensed instead of capitalized and other detail. It's important to keep the accounting of in-kind contributions consistent.
Read about donations details that matter
Read about volunteer retention ideas
Check out 'Nonprofit Finance: A Practical Guide" -- Nominated for the McAdam Book Award