Since the in-kind donation may not be counted on to run a project in the future, recognizing the income provides better financial information on the cash generated or cost of the project.
Instead of cash, in-kind contributions are donations of goods, services, or time.
A local caterer donates food for a fundraising event of a non-profit organization. In order to receive “credit” for his donation, the caterer provided the non-profit a bill for the amount he would normally charge a client for the same food. The amount of the bill is the amount of his donation.
Before the donation can be entered into QuickBooks, an income and clearing account, as well as the product/service item, should be set up to record the donation.
The in-kind donation is reflected as in-kind donation income and catering (or the appropriate expense) on the profit and loss statement. The result is financial information for the event that includes the total amount of donations and expenses. Next year you have complete financial information to plan the event again.
Check with your accountant regarding specific accounting rules when recording in-kind donations.
If you need help setting up a system for in-kind donations, email me at kathy@budgetease.biz. We specialize in bookkeeping for non-profit organizations and would be happy to help you with this or any other bookkeeping questions you have.