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"The bottom line answer is even if you provide the artist with a letter acknowledging their art, they are not going to be able to get a deduction on their tax return. They will have to report a sale (income) and equal amount of donation (expense) so the bottom line for them is zero effect."
More clarification on this would be great: does that basically mean that there's no benefit to providing the artists and professionals with a thank you letter if their donation is not monetary?
1) I believe I answered that one
2) Similar to donation from an artist when they have created the art
3) GAAP does not allow for netting expenses against income (or Vise-versa) unless the transaction is incidental. I don't know how much we are talking about and how incidental this is to your operations. Let's assume it is incidental, I recommend that when you are recording the expense for your organization, you only record the portion of the bill that your organization is incurring and set-up a receivable from the other organization. When the other org pays, all you have to do is reduce the receivable. If this is not incidental, you should record all of the expense and all of the income. Depending on the dollar amount (which I assume is not that much) you may get yourself also into the unrelated business tax arena.
The following assumes that you are paying for the catering and the board member is paying you later
Debit - Catering (expense) $500
Credit - Cash ($500)
When you receive the funds from the board member
Debit Cash $500
Credit Donations $500
The following assumes that the board member pays the catering service directly:
Debit - Catering (expense) $500
Credit - In-kind contributions ($500)
My apologies if my questions seem redundant: I guess I'm trying to understand the point of in-kind donors receiving letters or donor receipts from nonprofits like Goodwill if it's not going to benefit them tax wise.
Thank you for the information: it's never occurred to me that sharing costs with another nonprofit in that way could be considered as unrelated business income; good to know before making that arrangement.
There is no benefit from their point of view. But you also want to record the value of their donation on your accounting records. In which case you will record them at their fair value at the time you received the donation. You come up with the fair value by obtaining comparisons elsewhere.
For services GAAP has very clear guidance as to what should be recorded on the books. Here it is:
1. The service enhances a non-financial asset, or
2. Is provided by a skilled individual who already has the skill, and
3. The organization would have purchased the service if it wasn't provided probono
In English, you would only record services that are provided by a "skilled" professional that you would have to pay for if you didn't have a donor
Great to know: thanks again!
I guess I originally posted in the wrong place for today's soup chat. Is it too late to join?Wondering about best ways of tracking designated funds/restricted donations. We are a church association, with a variety of ongoing funds that carry over from year to year outside our regular budget. At present, we just set ours up as "other current liabilities" in our chart of accounts, then created matching listings in the item lists (to be selected when entering donations/sales receipts) that connect to those accounts. This way the funds can roll over from year to year. Will that create a problem?
FRBA, you made it just under the wire! We're looking at your question now. And welcome!
Restricted funds are different than designated funds. Restrictions come from donors (outside of the org) and designations come from internal management or the board (inside of the organization). There are different ways to track the two and they are different.
It sounds like, the way you are tracking yours is not in accordance with GAAP. This was the subject of two very important accounting standards that was introduced in early 1990s and requires a lot more discussion that I can do in a short answer.
I recommend that you obtain AICPA Audit and Accounting Guide for Not-For-Profit organizations and read the section about support and revenue.
Thanks to everyone who participated today and especially to Hydeh for lending us her time and expertise! Remember to check out http://www.techsoup.org/accounting to see the donated resources our corporate partners make available to nonprofits and public libraries.
Allyson Bliss, Senior Program Manager, TechSoup
Ok all, thanks so much for joining us for today's #SoupChat on accounting for nonprofits !! And a big thanks to Hydeh and Allyson for taking your questions.
To kick-off our newest donor partnership, we’re hosting a #SoupChat with Box.org Executive Director Bryan Breckenridge on Thursday, March 26 at 12:30 pm PT. So please join us again at the link below on March 26!
Bookmark this link for our March 26 #SoupChat:
Have a great one and we'll see you all soon!
I guess I'm actually talking about designated funds then.
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