Contributed services are professional services that have been donated by someone outside of your organization with specialized skills — such as those provided by doctors, nurses, lawyers or accountants. They have a real monetary value, but you must handle them differently compared to donated goods when recording them in your accounting system and acknowledging your donors.
According to Generally Accepted Accounting Principles (GAAP), services provided by a nonaffiliate are recognized and recorded at fair value if each of the following criteria are met
- The service requires specialized skill,
- The service is provided by someone possessing those skills, and
- The service would typically need to be purchase if not contributed.
Contributed services that do not meet this criteria should not be recognized and recorded. If the services were received from an affiliated entity, such as shared administrative services, they should be recorded even if they don’t meet the preceding criteria. Remember that disclosures of contributed services are required even if they are not recognized in accordance with GAAP.
When you receive contributed services, record the transaction in your accounting system as a net zero transaction; the in-kind contribution is recorded as revenue with a corresponding expense for the services provided.
For example, let’s say that an attorney on your board spent ten hours providing you with legal advice (outside their role as a board member). This is a real expense that your organization would have paid for if you didn’t have that time donated. It is important to record these contributions of goods or services at the fair market value at the time donated. However, remember that contributed service are not tax-deductible so you should not be providing a gift receipt to the donor. Only expenses directly incurred by the donor in the process of donating their time would be tax-deductible and they should have those records.