Journal Entry for In-kind Donations
In-kind donation is the amount that nonprofit entities receive in form of donations besides cash. The donation can be assets or services which are not cash.
Nonprofit entity is an organization that is established to serve a specific purpose besides generating profit. The entities are made for the public interest such as humanities aid, cultural work, environmental, religion, and many others. The different entity has different objectives but profit is not one of them.
Most nonprofit organizations will be operated based on donations from various sources. The donors are the people who share the same objective and are willing to spend money to support the organization. The government of some countries will spend money to operate any activities. Besides that, the individual and corporate also donate to support the nonprofit organization.
The company donates to any specific organization as part of its social corporate responsibility. They want to eliminate the negative footprint from their business activities. For example, company donates to an environmental organization.
The donation is not always cash. Some entities donate assets or services to nonprofit organizations to support the operation.
Journal Entry for In-kind Donation
When the nonprofit receives the in-kind donation, they have to record donation revenue and the other side base on the nature of the donation. The in-kind donation can be the fixed assets or service, and it depends on the donor and the items received.
If the donor donates fixed assets to the nonprofit, entity has to record in-kind donations by debiting fixed assets and credit in-kind donations.
The transaction will increase fixed assets on blaanc sheet and donation income on the income statement.
If the donor donates services such as rent, accounting services, and other services to the entity. They need to record expenses and revenue at the same time. It will not impact the bottom line of the entity. The journal entry is debiting expense and credit in-kind donation.
The transaction will create both revenue and expense on the income statement.
ABC is a nonprofit entity that supports wildlife in South East Asia. One donor has donated a car cost $ 50,000 to the entity to support the operation in the forest. Moreover, the local company has provide free rent for the ABC head office, the cost of rent would be $ 500 per month. Please prepare journal entry for the donation.
The first donation, ABC receives a car from the donor which is considered an in-kind donation. They have to record car based on the fair value and revenue which is the donation. The journal entry is debiting fixed assets-car $ 50,000 and credit in-kind donation $ 50,000.
|Fixed Assets – Car||50,000|
The second donation is the free renting service. ABC has to record rental expenses and in-kind donation at the same time. The journal entry is debiting rental expense $ 500 and credit in-kind donation $ 500.