What Is In-Kind Donation?
Definition: In kind donation are gifts that donors give to non-profit organizations to facilitate their operation. Indeed, non-profit organizations involve themselves in activities that do not earn them income. These include caring for disadvantaged people like orphans and people with disabilities. Therefore, they need a constant flow of donations to keep them afloat.
The donations come in many forms other than cash. They include goods like books, office equipment, clothing, supplies among many others. In-kind donations may also include intangible goods like software, patents, advertising and royalties. These goods may be new or used and the recipient organizations may be given full ownership or the arrangement may be just a loan.
Additionally, in-kind donations may come in form of services. A corporation may decide to offer professional services to a non-profit organization and then categorize it as a donation. For example, a publishing company may decide to publish newsletters for a church without charging them. Another example of services that are in-kind donation is a transport company that offers free transport services to a children’s home.
Are In-kind Donations a Source of Revenue?
Accountants treat in-kind donations as a source of revenue for the receiving organization. However, this happens under the assumption that the donation in question has monetary value. Also, if the donation has substantial significance to the primary mission of the receiving organization, then it should appear as revenue on the organization’s books.
For example, clothing donated to a children’s home is of great value to the organization. This is because the organization will not have to spend money to buy the children the cloths. Therefore, an accountant will consider the value of the cloths as earned revenue. Specifically, the contribution appears as income because it frees up the cash in the organization’s coffers for other needs. For instance, the money that would have bought cloths may go to covering operating essentials like payroll taxes.
Therefore, organizations must appraise each in-kind donation to determine its value. The most common way of determining the value is by using the market value. For contributions such as voluntary service, you might consider the average hourly wage for the level of skill required for the contributed service.
Conditions for In-Kind Donations
Oftentimes, non-profits run into many challenges during their operations. However, the most significant ones involve problems arising from the donations they receive. Sometimes the donations come from unscrupulous sources and they may lead to authorities questioning the mission of the organization. To avoid run-ins with authorities and to maintain the trust that the society has for the organization, majority of them set conditions in-kind donations.
In particular, laying down the rules that guide acceptance of donations help to keep the organization’s mission sacred. Additionally, the conditions help to guide the expectations of the donors. Ultimately, this helps to deter donors who have ulterior motives. Some of the conditions for in-kind donations include:
Gift Agreement
This document lays out the terms of the donation and any other critical information. Notably, the document captures the purpose of the donation and the conditions set forth by the donor. Other details captured in the gift agreement document include the name of the donor, the date of receipt, details of the gift, the name of the recipient organization, and any other information that may be of interest. To be sure, the agreement might seem insignificant but it is crucial especially in a dispute.
An Acknowledgement Form
This document records the same details as the gift agreement form. Specifically, the information on this document is helpful in case the donor wants to claim a deduction on taxable income.
Gift Acceptance Policy
Oftentimes, donors target non-profits with donations for different purposes. Admittedly, most donations are in good faith and they aim to facilitate the good deeds of the non-profit. However, some donors take advantage of the donations to earn influence in unfair means. Therefore, non-profits need a gift acceptance policy that sets forth the procedure of receiving donations. Ultimately, this ensures that all donations complement the primary mission of the organization.