This is our third and final post dealing with how your church can responsibly handle donations from other organizations. Click to see part 1 and part 2. So far, we’ve only talked about donations of money.
But what if instead of money the other organization donates cans of food, water bottles, toys, lumber, tents, computers, paper, pens and pencils? What responsibilities do you have? How should you record the donation?
A hardware store donates lumber to your church
We’ll run through a scenario where a grocery store – All N Good Taste – donates 300 cans of soup to help in your church’s effort to feed hungry children. (This kind of non-cash contribution is also called a “gift in kind”.)
First, what should you give All N Good Taste?
You should give them a statement of what they gave and when. The statement should clearly describe the goods received – 300 cans of soup (maybe even including the size and brand if it doesn’t get too complicated).
Also, including the purpose of the donation will help to show good faith that your church plans to respect the donors’ wishes for the how the gift should be used. After all, All N Good Taste probably doesn’t have the kids at the youth group retreat in mind when it donates cans to hungry children. Respecting donors’ wishes is serious business and has been known to lead to major lawsuits.
The statement should not include the worth of the goods. That’s not something a church is qualified to report on. If All N Good Taste claims their gift as a tax deductible donation, they’ll want the statement you provide, but they will need to include their own documentation or estimation of what the goods are worth.
The same principle applies if an individual donates items to a church. They should receive a statement of exactly what was given and when, but not the estimated value of the items.
Next, how should this go on the church’s books?
The cans of soup should be recorded on the church’s accounting books as an asset. If you already have an asset called something like Food Donated to Hungry, you can use that, or create a new asset account for this specific contribution.
While you need to steer clear of reporting on the value of those cans of soup in their statement to All N Good Taste, you also need to determine and record the value of the contribution in this asset account.
The account will be reduced or zeroed out once you finally distribute the cans.
For the offsetting entry, those goods need to be recorded in a revenue account – one that’s set up and named so that a report like the Statement of Activities will accurately show the income of the cans.
More on non-cash contributions
The rules and IRS regulations dealing with these gifts in kind can get complicated. This blog post just covers a simple example, but to wade deeper into the waters of reporting on gifts in kind, refer to our ebook Recording and Increasing Church Donations.
IconCMO and Gifts in Kind
Our IconCMO cloud-based church management and accounting system is designed to handle in-kind donations and statements.
These contributions can be linked in IconCMO to any special asset or revenue accounts set up in the chart of accounts to account for these donations.
When you enter a non-cash contribution, there’s a box to enter a clear description of the goods received that shows up on statements back to the donors. Because IconCMO is designed to follow Generally Accepted Accounting Principles (GAAP) for nonprofits, it requires you to fill in a description of the goods and does not allow you to enter in a dollar value (which a church is not qualified to report on).
With a few mouse clicks, you can use IconCMO’s contribution module to send statements out specifically for these gifts in kind or together with the donors other cash/non-cash contributions.
This is all handled the same way whether the donor is an organization or an individual.
Below is a sample statement for this kind of transaction, with no dollar amount but a description of what was donated – twenty 2×4’s in this case.