Question

How are contributed services accounted for by private nonprofits? Do they make a journal entry? Why or why not and when? What does the entry look like. Please fully explain.

Answer 1

Contributed services:

In Non profit accounting, Contributed services are those professional services provided(donated)  by the ones outside the organisation with specialised skills like Accountants,Auditors, Doctors,lawyers, etc. Generally, they are those services to perform which a person must possess a licence or certification.

In order for the service to be recognized as contributed service, the following points must be considered:

1.The service should create or enhance non financial asset.

2.The service must require specialized or technical skills which would have been purchased if not donated by those professionals having such skils

That means for example, if a non lawyer gives his legal advice to an organisation , it would not be recognised beacuse it will not account for "contributed service"

Yes, an entry must be made in the books of accounts if those services are provided by outsise professionals .

But if any of the above 2 conditions is not satisfied, then the services will not be recognized .

Journal entry for recognition of Contributed services;

Asset/ Expense. Dr

Contributed services. Cr

In order to recognise the expense (which would have been made if not provided as donated service) we debit it and we credit the contributed service account to recognise the contributed service.