As an accounting major in college, I quickly learned all of the complicated parts of the accounting cycle. I discovered how to input the details of business transactions into a computerized accounting system. At the end of an accounting cycle, such as a month, I became experienced with calculating the revenue for the period. If you’re starting a new business, determining an accurate amount of revenue for each accounting cycle is crucial. You must know how much profit you’re making each accounting period in order to be successful in the long-term. On this blog, you will discover how an experienced accountant can help you keep track of your revenue.
It is not unusual for nonprofit organizations to receive non-cash donations. This is usually referred to as in-kind contributions and in most instances, will need to be recorded when filing your taxes. If you run a charity or nonprofit group, then the following will show you how to correctly record in-kind donations.
Tangible Items
Tangible property may include donation of physical items, such as clothing, equipment and furniture. Examine these items you received and ask yourself whether such goods can be sold or used by your charity. If the answer is "no," then it's not necessary to report them on your taxes. If "yes," then you need to determine the items' fair market value.
Also be sure to examine whether the goods can be considered collection items, such as art work or hard-to-find antique items. This falls under an entirely new category and should be handled by an accountant.
Use of Property
Donations in the form of property usually entail contributions like free use of a venue. This type of donation should be treated like a cash contribution, and you will need to record the rental value of the property used. If it's used on a recurring basis, then be sure to record a pledge receivable. A receivable pledge is the total, estimated rental value of the property that you expect to continue to use in the coming year.
Personal Service
This comes in the form of donated time and labor. If the personal service came from an individual, then determine whether the service enhanced a non-financial asset. An example may include volunteer labor and renovation work that increased the value of your facility or equipment.
If the service increased an asset, then record the value of the asset after the service was completed. If not, then ask yourself whether the service included a specialized skill that your business would otherwise have to pay for. A specialized skill includes services that require licensed training, such as those provided by electricians, carpenters, doctors and welders. If yes, then record the estimated fair market value of hiring such services, including labor and supplies.
As a nonprofit organization, you have to be very careful about not leaving any details out when it comes to in-kind contributions. If you are still unclear or don't want to risk an audit by the IRS, then it is best to leave the number crunching to an accountant. For more information, contact On Task Accounting.
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