I got asked a great question about how a Non-Profit Organization (NPO) values time donated by volunteers.

Donated services don’t get a lot of attention by the IRS or the auditors. Although the IRS Form 990 allows donated goods to be included as part of contributions revenue, it does not permit this for donated services. It also is included in the financial statements usually as a net $0 transaction as it is booked as a revenue and an expense and therefore donated services have NO net impact on the financial statements.

NPO volunteers provide much needed services to NPOs. Some NPOs rely on these services as an integral part of the NPOs operations, but not all volunteer hours are recognized as contributed services in the entity’s accounting records.

NPOs should recognize contributed services as a contribution and as an expense if:

(1) create or enhance nonfinancial assets (constructing a building) or

(2) require specialized skills, are provided by individuals possessing those skills, and would typically need to be purchased if not received by donation.

Contributed services that meet the definition for recognition are recorded at fair value.

Professionals and craftsmen such as carpenters, plumbers, lawyers and doctors may provide these services. Volunteers helping at your annual event would not count. The fair value of the contributed services should be recorded, along with a description of the services, within the period in which the services were received.

In addition, if an affiliated organization is providing donated services (such as accounting, information technology and administrative services) that meet the above criteria, these services would also need to be recognized as contributions.

This would also apply to promises to give services that the NPO has not yet received.

The journal entry to record the receipt of contributed services is:

DR CR

Asset (and/or) xx

Expense xx

Contributions Revenue - contributed services xx