Posted by Jonathan D. Moll, CPA
Donations of services can be useful to your organization during tough economic times. But should you record them in your financial statements? And, if so, what amounts should you assign? FASB Accounting Standards Codification (ASC) 958, Not-for-Profit Entities, specifies when a nonprofit should recognize the fair value of services in its financial statements.
There are two types of donated services a nonprofit can recognize:
1. Services creating or enhancing a nonfinancial asset. If the service creates or enhances a nonfinancial asset, you can recognize the donation. Such services are capitalized at fair value on the date of the donation. Donated services that create or enhance a nonfinancial asset don’t necessarily need to be specialized to be recognized. For example, the value of an individual’s time (whether specialized or not) to build an addition to a building would be capitalized as part of the building. But routine equipment maintenance shouldn’t be recognized, because it doesn’t enhance the nonfinancial asset.
2. Services needing specialized skills. You also should recognize the donation if the service requires specialized skills, is provided by people with those skills, and would have been purchased if it hadn’t been donated. Account for this service by recording contribution income for its fair value. Also record it as a related expense, in the same amount, for the professional service provided. “Specialized skills” refer to services provided by attorneys, accountants, architects, carpenters, electricians and the like. Developing these skills usually requires specialized schooling or training. Normally, this would exclude general volunteer time at your facilities and your events. These volunteers typically don’t need specialized skills to perform their assigned tasks. Nonetheless, your nonprofit may want to disclose the total number of volunteer hours it received during the year in its financial statement footnotes. Such a contribution emphasizes the commitment made by the community to your nonprofit.
In a downturned economy, you may receive fewer and smaller cash donations. But there may continue to be a steady stream of donated services that your nonprofit can put to use. Reported properly, these contributions can help paint a clearer picture of your organization’s financial activities