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Did you know that nonprofit organizations may recognize donated time from their volunteers as contribution income in their financial statements? In order to take advantage of these financial reporting rules, management and volunteers must be aware of certain requirements and restrictions on recording donated time.

Nonprofit organizations often rely on volunteers to provide routine services for their organizations. This donated time can be recorded as revenue if certain requirements are met. The questions a nonprofit organization should ask itself are:

(1) Will the donated time create or enhance a nonfinancial asset?

– or –

(2) Would our organization purchase the required specialized skills of the person who donated their time if they were not donated?

Let’s take a closer look at each question.

How would volunteer time create or enhance a nonfinancial asset (nonfinancial assets are assets with a physical value, like a building or piece of equipment)? The answer would be volunteers spending time constructing a fixed asset, or making major improvements to buildings or equipment. It could also be volunteers writing computer programs.

The second question may be more difficult to answer. The organization must break this question down into three parts. First, what are the specialized skills that the organization needs? Second, does this individual possess these skills? Third, would the organization typically have to purchase these services if not already provided by donation? Examples of these specialized skills could be donated legal services, accounting services, physicians, nurses, architects, or other professionals.

If the answer is determined to be “yes” to either of the questions above, the nonprofit organization must recognize the volunteer time as income. The volunteer time would be recorded by the nonprofit organization at the fair value of the services provided regardless of whether the organization could afford to purchase the services at fair value.

There are also exceptions to these rules and special considerations when the donated services are received from an affiliated entity. For more information on these accounting rules, please contact Kristi Yanover for more information.

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