From our last post, Why Record Volunteer Services?, you know some volunteer services must be recorded as defined in Generally Accepted Accounting Principles (GAAP). Other volunteer services, while valuable to the organization, do not meet GAAP criteria for recording. However, you still may wish to record them for management purposes or disclosure on Form 990. In this post we will go over how to record both kinds of in-kind contributions.
Step One: Set up the accounts you will need.
First create income accounts in your chart of accounts as shown below. You will need a parent account called In-Kind Contributions. Then create sub accounts for one or both types of volunteer services, depending on your needs. This section of the chart of accounts should look like this:
- In-Kind Contributions
- Donated Services (GAAP)
- Donated Services (Non-GAAP)
Entries to record in-kind services will always affect an income account and an expense account at the same time. Think of it this way – if you received a cash gift which you used to purchase services immediately, you would have contribution income from the cash donation and expense from spending the cash on services. In the end you would not have the cash because you spent it. A donated service cuts out the trouble of receiving cash and writing a check. You simply have donation income and expense with no cash involved.
Step Two: Determine the value of the donated services.
The value you record for in-kind services depends on whether the services are professional or non-professional.
For professional services, ask volunteers what they normally charge for services. If they give a discount to nonprofit organizations as a standard practice, use the discounted rate. Also consider rates charged by other professionals who provide similar services. You are not required to use the value given by the volunteer.
For non-professional services that do not rise to the level of recording per GAAP, refer to Independent Sector which regularly updates a value of volunteer time. You may wish to offset the income to an expense account such as Volunteer Service Expense – Non GAAP.
Step Three: Create the entries.
You have two choices on how to create the entries in your books:
- Create a journal entry for the value of the services provided.
Credit an income account and debit an expense account depending on the nature of the service. The expense account does not necessarily have to be labeled as an in-kind expense, though it would be helpful to use a separate expense account for non-GAAP services. For professional services, it may be sufficient to label the income side as in-kind contribution income and use an existing expense account. Remember you don’t want to add more accounts to the chart of accounts than absolutely necessary because more accounts leads to longer and harder-to-read reports.
- Create a sales receipt to record the in-kind gift.
Use a sales receipt if you wish to track the individual donor name in QuickBooks or if you want to track in-kind donations in item-based reports in QuickBooks. For example you can run a Sales by Item Summary report in QuickBooks and see all the sources of income broken out based on the items you have used to record them.
If you use a sales receipt for the in-kind gift you now have the problem of how to deposit the “cash.” QuickBooks does not have any way to distinguish in-kind gifts from cash gifts on sales receipts. The work-around is to deposit the in-kind gift into a pretend bank type account you set up which can be called Gifts-in-Kind Clearing. Then write a check on the Gifts-in-Kind Clearing bank account to a vendor called Gifts-in-Kind and code it to the proper expense account based on the nature of the services. The check will bring the Gifts-in-Kind Clearing bank account back to zero.
What volunteer services will you be recording and why? Please share your experiences with volunteers, either in the comments section below or contact us. We’d love to hear your stories!