Services Donated as Contributions

Lesson: Services Donated as Contributions

In this engaging lesson, Nick Palazzolo, CPA, breaks down the complexities of accounting for donated services received by not-for-profit organizations. He clarifies when and how to value these contributions, providing illustrative examples ranging from tax services to bricklaying and medical expertise. This discussion highlights the criteria for recognizing donated services as both contributions and expenses, focusing on the enhancement of non-financial assets and the use of specialized skills. Nick also explores common situations, such as lawyers offering pro bono services and physicians providing subsidized care, detailing how to record these at the appropriate market rates. Additionally, the lesson covers the practical application of these principles with the examination of pertinent journal entries.

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Instructor: Nick Palazzolo

Nick Palazzolo is head instructor of ExamPrep.ai CPA Review. Nick's teaching style is engaging & upbeat, combining practical Big 4 tax & assurance expertise with years of 1-on-1 coaching. His lessons are concise and emphasize what you need to know to pass. Whether you're a recent grad or working full-time, we’re confident you can conquer your CPA exams with Nick’s review.

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Donated services as contributions. Well, donated services received by a not-for-profit are difficult to record due to having to determine their monetary value. So if I am an accountant and I give this not-for-profit free tax services, my buddy over there is a brick mason. He's going to give them, he's going to build them a little brick house in the back. Then I've got a law friend. That law friend is going to contribute law services. The doctor friend helps to work as a nurse in the not-for-profit. So you see, these are all services and how do you record these?

However, donated services should be recorded as a contribution and expense at fair value if the services performed meet these criteria. So we're going to record them as a contribution and expense if they create or enhance a non-financial asset, land, inventory, etc., or they require specialized skill the provider possesses and would otherwise have been purchased by the organization. You'll see plenty of questions on this.

So, we have, let's say, a brain surgeon doctor. The brain surgeon doctor, he or she goes in and just works at the front desk. They don't have to do brain surgery to contribute to a not-for-profit. Maybe they work the front desk at a museum. Well, that's not going to meet these criteria because they're not using their specialized skills. Now, if the brain surgeon performs brain surgery on behalf of the hospital for free as part of the contribution to the not-for-profit, then yeah, it's going to meet these criteria and it's going to be recorded as a contribution and expense. You see the difference there. They create or enhance a non-financial asset.

So, I mean, I could be just some guy and I'm saying, okay, I'm going to

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