Accounting for Contributed Services

By Marguerite Moffatt, CPA

Malin, Bergquist and Company, LLP

Non-profit organizations are aware that “contributed services” are to be recorded as part of their financial statements. At the same time, however, they may not be entirely clear on what is considered a “contributed” service and how it differs from “volunteer” service. The difference is important to understand.

The first type of contributed service occurs when professionals provide a service in their field of expertise. Examples of professionals are accountants, lawyers, architects, doctors, nurses, teachers, computer specialists, carpenters, plumbers and other skilled craftsmen. These services must be related to the professionals’ specialized skills. A physician providing health services to a free clinic would provide a contributed service which would have to be valued at her or his hourly rate for that service. That same physician reading to a child, or delivering meals to the elderly, would be volunteering his or her time. The latter is not a contributed service and therefore would not be included in the financial statements.

A rule of thumb is that if the service would have to be purchased and it is provided by a skilled professional, then it is considered to be “contributed.”

The second type of contributed service creates or adds value to a non-financial asset such as a building or equipment. When an asset is either created or enhanced, then all labor – both skilled and unskilled – is considered to be contributed services, as it is adding value to the organization’s assets. The value of this type of contributed service can be estimated based on either the fair value of the services received or on the fair value of the resulting asset or asset enhancement.

All contributed services are important to a non-profit organization. Be sure to have sound record keeping methods in place to track and value the contributed services received from skilled volunteers.

Marguerite Moffatt (mmoffatt@malinbergquist.com) is a certified public accountant with Malin, Bergquist & Co., LLP, one of Western Pennsylvania’s largest and fastest growing CPA firms. She is serving as president of the Erie Chapter of the Pennsylvania Institute of Certified Public Accountants during the coming year. For more information, visit www.malinbergquist.com/nfporgs.htm.

This article was published in the June 2008 edition of Duquesne University's Non-Profit Leadership Institute E-Newsletter